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Author: 


Pepper,  Charles  Melville 


Title: 


American  foreign  trade 


Place: 


New  York 

Date: 

1919 


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Pepper,  Charles  Melville,  1859- 

American  foreign  trade ;  the  United  States  as  a  world 
power  in  the  new  era  of  international  commerce,  by 
Charles  M.  Pepper  ...    New  York,  The  Century  co.,  1919. 

XV,  350  p.    20i"".       ^.50  n 


1.  U.  S.— Comm.       i.  Title. 


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AMERICAN 
FOREIGN  TRADE 


AMERICAN 
FOREIGN  TRADE 

The  United  States  as  a  World  Power  in 
the  New  Era  of  International  Commerce 


> 


BY 

CHARLES  M.  PEPPER 

FoKMER  Foreign  Trade  Adviser  to  The  DBPAETunrr 

or  State;  Author  or  "Tomorrow  ik  Ccba*: 

"Panama  to  Patagonia."  etc. 


NEW  YORK 

THE  CENTURY  CO, 

X919 


.     \ 


Copyright,  1919,  by 
The  Centuby  Co. 


Published,  August,  1919 


TO 

ALBERT  G.  ROBINSON 


PKEFACE 


/ 


The  epoch  of  the  Great  War  is  the  beginning  of  a  new 
era  in  the  trade  relations,  as  in  the  political  relations, 
of  the  world.  At  the  outset  the  war  was  viewed  merely 
as  an  interlude  in  the  shifting  drama  of  international 
commerce.  But  the  drama  proved  to  be  tragedy.  In- 
stead of  an  interlude,  the  war  became  the  prelude  to 
economic  events  whose  full  significance  is  as  yet  some- 
what dimly  apprehended. 

One  of  its  consequences  is  the  readjustment  of  their 
industry,  trade  and  finance  by  all  nations.  The  United 
States  in  this  readjustment  has  become  the  world  power 
in  international  commerce.  Foreign  trade  for  the  first 
time  in  their  history  has  come  to  have  definite  meaning 
to  the  American  people.  They  have  begun  to  realize  its 
place  in  their  own  economic  system.  It  may  be  viewed 
as  a  phase  of  domestic  policy  or  in  the  manifold  aspects 
of  world  policy. 

The  larger  view  invites.  It  assumes  readiness  to 
recognize  that  exports  are  only  one  factor  in  foreign 
trade ;  in  other  words,  that  this  is  a  question  of  mutual 
markets.  It  presumes  that  the  manufacturer  in  the 
United  States  is  ready  to  seek  the  market  abroad  as  a 
primary  market.  It  involves  understanding  of  the 
United  States  as  a  lending  country  with  the  opportuni- 
ties and  the  responsibilities  that  belong  to  a  creditor 
nation. 

Information  concerning  the  resources,  the  industries, 


•  •  • 

VUl 


PREFACE 


and  the  trade  of  the  several  sections  of  the  world,  the 
economic  tendencies  and  fiscal  policies  of  the  nations, 
IS  the  basis  necessary  to  an  intelligent  survey  of  the 
entire  field  of  foreign  commerce.     This  information  I 
have  sought  to  give.     For  the  benefit  (»f  the  very  large 
number  of  persons  who  confess  a  constitutional  shyness 
for  figures  a  somewhat  sparing  use  of  statistics  has  been 
made.     Yet  it  may  be  suggested  that  the  trade  statis- 
tician, followed  with  discrimination,  is  a  much  safer 
guide  than  the  political  economist  with  his  closet  de- 
ductions, or  the  platform  orator  with  his  platitudes  and 
generalities. 

Since  information  rather  than  the  propaganda  of 
opinion  is  the  purpose  of  the  pages  tluit  follow,  a  few 
observations  may  be  made  on  such  views  as  are  given 
expression. 

The  new  era  is  one  of  international  cooperation  in 
finance  and  trade  to  a  degree  undreamed  of  in  the  period 
before  the  Great  War.     The  United  States  is  the  com- 
mandmg  factor  in  this  cooperation.     But  this  circum- 
stance does  not  change  the  essential  conditions  under 
which  commerce  is  conducted.     Emotional   economics 
have  no  part  in  international  commerce.     It  deals  with 
actualities.     International   trade  benevolence  with  its 
overlapping  bureaucracy  is  likely  to  be  as  demoralizing 
as  indiscriminate  charity.    The  world's  markets  are  com- 
petitive  and  it  is  good  for  the  world's  consumers  that 
they  should  be  so.     Equally  it  is  good  that  each  nation 
should  follow  its  own  bent  and  should  give  play  to  its 
own  genius  in  cultivating  these  markets. 

Inherited  paternalism  flowering  into  governmental 
control,  autocratic  state  participation  in  trade,  finance, 
and  industry,  may  suit  some  peoples  and  obtain  the 


PREFACE  ix 

measure  of  popular  support  necessary  to  incorporate 
them  into  national  policies.  Individualism  with  the 
wide  field  it  affords  to  initiative  and  the  encouragement 
it  gives  to  the  industrial  and  commercial  instinct,  may 
prove  more  suitable  to  other  peoples.  It  is  likewise  for 
them  to  determine  their  own  national  policies.  That 
the  American  spirit  in  developing  world  trade  will  be 
strongest  under  the  individual  impulse  is  the  author's 
belief.  The  correctness  of  this  belief  may  be  examined 
and  tested  in  the  light  of  a  general  survey  of  the  under- 
lying economic  and  political  conditions  which  affect  the 
trade  of  the  several  countries  of  the  world. 

C.  M.  P. 
Washington,  August,  1919. 


I 


CONTENTS 


•-4^ 


CHAPTER  I 


What  Foreign  Trade  Is 


3 


Buying  as  well  as  selling  goods  abroad — Nature  unchanged  by  the 
Great  War — Imports  the  measure  of  world  commerce — Comparison  of 
quantities  and  values — New  high  price  levels — Transportation  as  an 
element — Relation  of  foreign  trade  to  domestic  prosperity— Internal 
factors — United  States  as  an  exporting  country — Evolution  from  agri- 
cultural products  to  manufactured  articles — Farm  implements  and  the 
blast  furnace — Readjustment  of  visible  and  invisible  balance* — Sig- 
nificance of  change  to  a  creditor  nation 


CHAPTER  II 
The  Farm  in  Foreign  Trade 19 

Economic  basis  of  the  new  agriculture — Checking  the  food  waste — 
War-time  production — A  bushel  of  wheat  per  person  in  export  trade 
— Corn  and  swine — Cattle  and  meat  products — Cotton  as  a  factor  in 
foreign  business — Insufficiency  of  production  outside  the  United 
States — Lancashire's  futile  efforts — The  American  farmer's  prospects 


CHAPTER  III 
Machinery  and  NationalizJed  Efficiency   .... 

Standardizing  European  methods — England's  progress  in  scientific 
effectiveness — American  individualized  efficiency — Machinery's  place  in 
industrialism — Development  of  productive  power — Decrease  of  handi- 
craft— Monotony  of  machine  craft — Welfare  projects — Prohibition  as 
an  economic  element — England's  drink  problem — The  industrial  woman 
of  the  world — Status  in  the  United  Kingdom — Position  in  the  United 
States — A  world  reserve  factor  in  production 


33 


CHAPTER  IV 
Raw  Materials 47 

Iron  the  blood  of  industrial  nations — Ore  resources  of  the  world — 
Distribution  in  the  United  States — Coal  reserves — Sources  of  man- 
ganese— Copper  and  other  industrial  metals — Petroleum  as  fuel — 
Where  the  oil  fields  lie — Water  power  as  motive  force — Raw  materials 
of  textiles — Great  Britain's  basis  of  iron  and  steel  industries — Geo- 
graphical advantages — Points  in  competition  with  the  United  States — 
What  Lorraine  iron  and  Sarre  coal  mean  to  France 

xi 


xil 


CONTENTS 


VAGI 

.     62 


CHAPTER  V 
The  Diplomacy  of  Commerce 

brags  Sa?e^^^^^^^^  Tinl^'^^lj^^^^ 

CHAPTER  VI 
Economic  Alliances  and  Pavored  Nations  ....     74 

Echoes   of  the   Pans    Pact  of    1916— Summary   of   its   » ■-: 

Inheritance  m  Peace  Settlement -Economic  boycott,  and  tJiSrwa^T" 
Fiscal  polices  of  the  victors— New  basis  for  comm1r?ial  iJtercouJS^ 
Prospective   readjustment   of  favored   nation    practice— RevbwSf^ 

fchXSL-a'*'"'^^PP^^*^**^°"  *°  tariffs-^axi^uVand^i^Liim 
ti?  '^J?!:r^®'^'"*°y  ^.  conventional  tariffs  not  the  work  of  s^e?? 
men— Methuen  principle  modernized  in  the  Anglo  Japanese  Treat?!!^ 
gidustnal  mstmct  of  nations-Trend  to  nationafistic  Eeg  S'wiwi 


CHAPTER  VII 


90 


British  Trade  Policy     .... 

a.^^::?o're  ^Sf  ^^ter^X^Or^L    W^a^^^^^^^^^^^ 

ing  colonies-India  and  the  depeudendef-The  worM~'^ew-DifSiIS 
or  straightforward  protection?- -Government  paXcipatfon  in  fi^aS^e 
and  commerce— British  trading  corporation— Direa8uhsidiP*_«J«™f 
national  traits-British  interest:  the  key  to  British  poScy^*"^**"* 

CHAPTER  VIII 
American  Trade  Poucy jjq 

Historic    background — Com-r°rcial    characfflr    n*    o..i-„    j-  i      * 
Treaties  after  the  Civil  War— Blaine  rsHnr^ff^  L^***^^^-  diplomacy- 
bill  provisions— Cuban  rrcfprocitv  ^reatv  ^r^n?^j.**'''*''^'°'''~I>ingley 

CHAPTER  IX 
American  Trade  Policy  (Continued)  .     .  i25 

Pleti^lT'aTd"*inlxyb?J1ariffs-D;fS?1n'^  to.competltiv^  conditi'ons-1 

— Rejected  retaliatory  clause  in  Underwood  hill  Tol^sff  n  ^  ^^^'^ 
approval  of  retaliatory  schedulei-Melnf  of  "I^^ur  ag  e3Ttv°°n? 
treatment  for  American  goods— Rargaininff  tariffs— Hnf,«/^«#^^  °' 
sentatives  as  source  of  revenue  legTslation-Dves  a^d  n^^^^ 
combinations- The  Webb-Pomerene  Law— Price  lis^s  Kid  a«^  iJ 
home-Export  railway  rates^Objections  to  govermSe^t  cSntrSf-lf 
dividual  enterprise  in  foreign  business  K"v«rn™eni;   control— In- 


CONTENTS 
CHAPTER  X 


Xlll 


FAOS 


The  Cargo-Carriers 140 

Circumstances  leading  to  revival  of  the  merchant  marine — ^The  golden 
age  of  American  shipping — Measures  for  its  restoration — The  war 
Ijoom — ^Failure  of  tariff  devices — Shipping  Act  of  1916 — Supplemental 
legislation — Increased  tonnage  of  the  United  States — The  shipbuilding 
program — Questions  of  policy — The  Seaman's  Act — Reaction  from  Got- 
ernment  ownership — Competition  with  Great  Britain 


CHAPTER  XI 

Continental  Europe  and  the  United  States    .     .     •  153 

Vital  economic  changes — Factors  in  France's  industrial  reconstruc- 
tion— Colonial  commerce — Dependence  on  American  capital — Fiscal  re- 
lations with  the  United  States — Germany's  subtracted  raw  materials — 
Melting  away  of  Naumann's  Mid-Europe  dream — Past  and  prospective 
trade  with  the  United  States — Importance  of  copper  and  cotton— 
Austro-Hungarian  remnants — Belgium's  rehabilitation — Italy's  terri- 
torial expansion  and  industrial  ambition — Import  of  capital — Scaa- 
dinavian  group— Spain  and  other  countries 

CHAPTER  XII 
Russia  and  the  Near  East 168 

Constantinople  as  an  international  mart — The  Black  Sea  a  world 
lake — Jugo-Slavia  and  the  Adriatic — Bulgaria  and  Rumania — No 
Balkan  Customs  Union — Greater  Greece — American  enterprise  in 
Turkey — Russian  economic  units — Survey  of  the  whole — Commerce  of 
the  past — Trade  relations  with  the  United  States — Territorial  sub- 
traction— Agricultural  and  mineral  resources  that  remain — Siberia's 
status — ^Foreign  capital  the  hope  of  the  future 

CHAPTER  XIII 
Economic  South  America 183 

The  Southern  Continent  a  world  market — Export  taxes  a  Spanish 
colonial  inheritance — Limited  resources  for  manufactures — ^Agricul- 
tural and  mineral  products  the  source  of  purchasing  power — Brazil's 
rubber  and  coffee — Iron  ore  and  manganese — Decentralized  fiscal  policy 
— Argentina's  grain  and  lifestock — Lack  of  minerals — Uruguay  and 
Paraguay — Chile's  copper  and  nitrates — Protective  tariff  tendencies — 
Peru's  varied  products — Protective  and  export  duties — Bolivia  and 
Ecuador — The  Caribbean  region 


CHAPTER  XIV 


South  America  as  a  Market  for  Europe 


200 


Salient  geographical  aspects — Interchange  among  the  several  coun- 
tries— Ocean  routes  to  the  old  world — Panama  Canal — Racial  ties 
with  Europe — Immigration  from  the  Mediterranean  countries — French 
intellectual  influence  a  trade  factor — Spain  and  Italy — Reasons  for 
England's  primacy — A  century's  normal  growth — British  investments 
— Germany  b  methods — Teutonic  colony  in  Brazil  unimportant — 
Market  in  other  countries  not  lost — ^Tragedy  of  Belgium's  commerc^^ 
Europe's  prospects 


XIT 


CONTENTS 


CHAPTER  XV 
South  Amkhica  as  a  Market  por  the  United  States     2U 

Aspirations    from    Clav    t^    ri  •  »^-iAHi.b    .    ^14 

CHAPTER  XVI 
Economic  Destiny  in  the  Caribbean 


^. 


fave    national     policy— The     protect2?atef    v*^^   ^'^'^^'i  States— Posi 
dent      coercion Rnntn      ^    »^' "•*'^«'Orates — Nicarairua    Trwafv     » 

Haitian  treat.-^^     5^3^  a^^rZ^^^^^ 


232 


/ 


CHAPTER  XVII 


Canada,  the  Nation  to  the  North 


Of  nafur^alVsourc'S^'fo  "tradr"^^'^'''  of  national  spiritlRelation 
-Wheat  fields  of  thi  north  west"  lothp"f  ^°*^  „^or««t— MineVTl  we  »Ith 
way   ventures— Basis   of   industrial  &o?°P^~~^«^«008  ^or  darini  rail 

Fu^roni-Zr/'T.  ^°^  Preferlnt?a\  '"Lrfc^^^''^^  ^^^  steeTriins 
jg,urope— After-the-war  prospe.  ts— Tr-l J  fre-War  commerce  with 
States— Reasons  for  rejecting  fhl^T-^^^ -.  ^^^a^'o^s  ^ith  the  UnTiS 
intercourse  in  the  future  '^  ^^^  reciprocity  agreement-Clo«e  busfnSJ 

CHAPTER  XVIII 
Japan  and  Mutual  Markets 

'''f3'^T^^^  ,ro'm  westerl 


248 


265 


CHAPTER  XIX 
China  and  the  Commerce  op  the  Pacific 


Econo^Sc   fndVndfnr?he°°aci?t%rl  ^'-'oUrn^^l%i«^e°,f--<=e!:^ 
States  a«  an  Interested  Frfend       ''''  ^°"  *^«   ^'^at  Pow^l^^i^'^TtS 


.  277 


CONTENTS 
CHAPTER  XX 


XV 


PAOK 


Investments  Abroad 291 

Trade  that  follows  the  export  of  capital — ^Fundamental  changes  as  a 
consequence  of  the  war — Review  of  practice  in  the  past — Extraterri- 
torial character  of  branch  factories — State  Department  formula  re- 
garding loans  and  development  enterprises — Popular  prejudice  against 
claims — Experiences  in  Spanish-American  countries — Lack  of  continu- 
ous national  policy — The  Chinese  incident — President  Wilson's  reversal 
— Principle  of  the  international  consortium — The  world  as  the  field  of 
American  investments 

CHAPTER  XXI 
The  American  Business  Man 307 

Relation  to  the  government  changed  by  the  war — Causes  of  aloofness 
— Distrust  of  bureaucracy — Why  he  does  not  come  to  Congress — Law- 
yer politicians  equally  ignorant  of  international  questions — Some  exam- 
ples of  business  ignorance — Sporadic  foreign  trade  forays — Applying 
the  remedy — Success  of  the  big  concerns — Coordination  with  the  gov- 
ernment— Cooperation  in  selling  abroad — Educational  factors — World 
commerce  as  the  business  of  the  United  States 


A. 


APPENDIX 
Reciprocity  and  Retaliatory  Tariff  Provisions    .  322 


1.  MoKinley  Act. 

2.  Dingley  Act 

3.  Proposed  Knox  Amendment 

4.  Rejected  provisions  of  Underwood  Bill 


B.  Text  of  Haitian  Fiscal  Protectorate  Treaty 

C.  China  and  the  Pacific 


.  332 
.  336 


1.  Secretary  Hay's  Open  Door  Letter 

2.  Root-Takahira  Declaration 

3.  Lansing- Ishii  Agreement 


Index 


•     •     • 


.  343 


i       i, 


AMERICAN 
FOREIGN  TRADE 


g'S^ess. 


II  r     ■■■iiaim 


AMERICAN  FOREIGN 

TRADE 


CHAPTER  I 


WHAT  FOREIGN   TRADE  IS 


I  Buying  as  well  as  selling  goods  abroad  —  Nature  unchanged  by  the 
Great  War  —  Imports  the  measure  of  world  commerce  —  Comparison  of 
quantities  and  values  —  New  high-price  levels  —  Transportation  as  an 
element  —  Relation  of  foreign  trade  to  domestic  prosperity  —  Internal 
factors  —  United  States  as  an  exporting  coimtry  —  Evolution  from  agri- 
cultural products  to  manufactured  articles  —  Farm  implements  and  the 
blast  furnace  —  Readjustment  of  visible  and  invisible  balances  —  Sig- 
nificance of  change  to  a  creditor  nation. 

FOREIGN  trade,  to  the  popular  mind,  is  selling 
goods  abroad.  Buying  goods  abroad  receive  lit- 
tle thought.  That  is  comprehended  in  the  more 
resounding  term  of  international  commerce,  which  means 
the  movement  of  merchandise  across  boundary-lines  both 
ways.  Exports  and  imports  are  the  opposite  pages  of  a 
commercial  nation's  ledger.  The  mechanism  by  which 
the  interchange  of  commodities  is  effected,  the  shipments 
of  specie  to  balance  accounts,  and  the  adjustment  of 
credits  without  such  shipments,  are  somewhat  vaguely 
understood  as  processes  entering  into  international 
commerce. 

The  popular  conception  of  foreign  trade  might  seem 
sufficiently  clear  for  the  purposes  of  a  work  of  general 

3 


'( <• 


f:  ii 


!    i 


t    I 


4  AMERICAN  FOREIGN  TRADE 

character.  It  reflects  the  maimer  in  which  the  ordinary 
man  views  the  subject,  and  ordinary  men,  in  their  total- 
ity, make  up  the  American  people.  But  the  significance 
of  the  United  States  as  a  world  power  in  international 
commerce  requires  a  more  precise  definition.  American 
foreign  trade  is  the  United  States  buying  goods  from 
other  countries  as  well  as  selling  products  to  other  coun- 
tries. The  term  "  American  "  is  used  with  the  knowl- 
edge that  South-Americans,  Central-Americans,  Mexi- 
cans and  Canadians  have  valid  objections  to  one  nation 
appropriating  it.  But  accepted  usage  in  the  objecting 
nations  themselves  may  be  urged  in  mitigation  of  the  of- 
fense. It  is  less  awkward  to  follow  the  common  practice 
than  to  differentiate  among  several  Americas  and  po- 
litical subdivisions  of  the  Americas,  or  to  point  out  the 
distinction  between  the  United  States  of  Mexico,  Co- 
lombia, Brazil  or  Venezuela  and  the  United  States  of 
which  Washington  is  the  capital. 

The  nature  of  foreign  trade  is  not  changed  in  the  period 
of  reconstruction  following  the  Great  War.  The  change 
is  simply  in  form  from  destructive  war  consumption  to 
reproductive  peace  consumption.  Production  resumes 
its  normal  course.  War  activities  die ;  peace  activities 
quicken  into  fresh  life.  New  industries  are  born  out  of 
the  war  chaos.  Old  markets  survive.  New  markets  are 
created.  Yet  wheat,  com,  pork,  beef,  mutton,  sugar, 
coffee,  tea,  cotton,  wool,  iron,  copper,  oil,  coal,  lumber, 
the  interchange  of  these  products  in  their  raw  or  manu- 
factured state,  constitute  the  foreign  trade  of  the  new  as 
of  the  old  era. 

The  consequences  of  the  Great  War  change  the  cur- 
rents of  the  world's  commerce,  and  that  is  all.  Political 
re-alinements,    groupings    of   peoples    under   changed 


WHAT  FOREIGN  TRADE  IS  5 

boundaries,  the  birth  of  new  nations,  creditor  countries 
becoming  debtors,  and  debtor  countries  becoming  credi- 
tors, do  not  substantially  modify  the  nature  of  foreign 
trade,  though  they  may  alter  materially  the  conditions 
governing  that  trade.  Its  nature  may  be  examined  in 
the  general  aspect  before  describing  the  position  of  the 
United  States. 

The  imports  of  all  the  countries  of  the  world  taken  to- 
gether are  the  only  measure  of  the  total  commerce.  They 
are  at  best  a  defective  measure,  yet  they  approximate  a 
real  standard,  for  they  show  the  value  in  money  totals  of 
goods  that  have  crossed  boundary-lines,  and  thus  have 
become  foreign  trade.  The  common  error  is  to  add  im- 
ports and  exports.  This  practice  ignores  the  fact  that 
the  exports  of  one  country  are  the  imports  of  another 
country,  thus  counting  each  transaction  twice. 

Students  of  international  economics,  and  manufac- 
turers seeking  markets  abroad,  need  not  confuse  their 
brains  by  too  much  effort  to  reconcile  conflicting  export 
and  import  statistics.  Trade  statisticians,  on  their  part, 
between  the  uncertainty  governing  the  exports  of  one 
country  that  become  the  imports  of  another  country,  and 
the  varying  values  due  to  the  numerous  processes  in- 
volved in  the  interchange  of  commodities,  at  best  can 
only  approximate  the  total  of  the  world's  commerce. 
They  are  like  the  metaphysicians  who,  seeking  to  define 
the  conditioned  and  the  relatively  conditioned,  are  con- 
tent to  discover  some  appearance  in  the  midst  of  things. 

In  general  it  is  true  that  the  difference  between  values 
in  countries  of  exportation  and  countries  of  importation 
is  made  up  of  carrying  charges,  exchange  paid  to  bank- 
ers, and  merchants'  and  shippers'  profits;  but  it  is  al- 
ways questioned  whether  the  total  amounts  thus  paid  ex- 


AMERICAN  FOREIGN  TRADE 


,■  I 


i 
I 


flii 


plain  the  whole  difference  in  computed  values.  Allow- 
ance for  freight,  insurance,  re-exports,  customs  duties, 
arbitrary  tariff  valuations,  market  values  at  the  place  of 
manufacture,  different  classifications,  and  different  ad- 
ministrative methods,  is  inconclusive.  Too  often  it  is 
misleading.  The  most  painstaking  investigation  of  these 
factors  only  gives  baffling  discrepancies. 

Growth  in  population,  machinery  as  an  element  in 
production,  subdivision  of  labor,  new  lands  opened  to 
cultivation  —  all  these  are  factors  in  the  increase  of 
world  trade  during  a  given  period.  But  it  is  not  of 
great  significance  whether  the  total  of  import  values  due 
to  these  and  other  causes,  which  constitutes  the  world'a 
commerce,  amounts  to  thirty  billion  dollars  or  to  thirty- 
one  billion  dollars  in  a  given  year. 

The  period  preceding  the  Great  War  was  one  of  ab- 
normally high  prices.  Whether  this  was  wholly  due  to 
gold  inflation  it  is  not  necessary  to  examine.  The  re- 
sult was  to  give  a  fictitious  increase  to  world  trade 
everywhere.  There  had  been  some  increase  in  quantity 
as  well  as  in  values,  but  not  a  proportionate  one.  Ex- 
panded commerce,  through  expanded  values,  with  an 
actual  decrease  in  the  quantitative  volume  of  trade,  was 
an  incident  of  the  war. 

Dollar  figures,  in  describing  world  commerce,  appeal 
to  the  imagination  by  their  stupendousness.  To  talk  in 
billions  is  to  think  in  billions,  and  the  habit  of  mind 
grows ;  yet  the  imagination,  in  dwelling  on  these  figures, 
should  not  become  too  riotous.  Where  the  quantities 
of  goods  exported  increase  with  rising  prices  there  is  a 
real  advance  in  foreign  trade,  although  the  augmented 
quantities  may  not  be  proportionate  to  the  advanced 
prices.    What  was  a  dollar's  worth  of  wheat  in  export 


I     '; 
!     I, 


WHAT  FOREIGN  TRADE  IS 


trade  in  the  midsummer  of  1914  had  become  two  dollars' 
worth  in  the  midsummer  of  1917;  but  the  bushel  was 
still  only  sixty  pounds,  and  five  bushels  of  wheat  were 
still  required  to  make  a  barrel  of  flour  of  one  hundred 
and  ninety-six  pounds. 

Farm  products  afford  numerous  illustrations  of  an 
actual  decrease  in  volume,  as  measured  by  quantity, 
with  an  increase  in  value,  as  measured  by  prices.  Be- 
fore the  United  States  became  a  participant  in  the  war, 
and  before  the  Government  fixed  a  minimum  price  for 
wheat,  this  tendency  was  clearly  manifested.  The  same 
phenomenon  was  shown  in  the  case  of  iron  and  steel 
products. 

In  the  fiscal  year  1915,  259,643,000  bushels  of  wheat, 
valued  at  1333,523,000,  were  exported.  In  1917  the  ex- 
ports were  149,532,000  bushels,  valued  at  $298,180,000. 
For  the  same  years,  respectively,  the  exports  of  wheat 
flour  were  16,183,000  barrels,  valued  at  f  94,869,000,  and 
11,942,000  barrels,  valued  at  $93,198,000.  In  this  case  a 
decrease  of  4,240,000  barrels  meant  a  decrease  of  less 
than  $2,000,000  in  the  values. 

In  iron  and  steel  products  exports  of  220,570,000 
pounds  of  wire  rods  were  valued  at  $2,744,000  in  1915. 
The  value  of  329,786,000  pounds  was  $9,870,000  in  1917. 
The  value  of  168,664  tons  of  structural  iron  and  steel  ex- 
ports was  $6,289,000  in  1915.  The  value  of  339,500  tons 
was  $22,911,000  in  1917. 

These  examples  show  that  the  quantity  of  exports  and 
imports  is  a  more  correct  measure  of  foreign  trade  than 
values  or  prices.  Dollar  figures  should  be  interpreted 
in  that  light.  It  is  apparent,  too,  that  values  in  the 
future  will  afford  little  satisfaction  in  seeking  to  make 
trade  comparisons  with  the  past.     The  period  before  the 


i 


8 


AMERICAN  FOREIGN  TRADE 


WHAT  FOREIGN  TRADE  IS 


9 


war,  as  has  been  stated,  was  one  of  abnormal  high  prices. 
The  war  period  was  one  of  inflated  prices.  The  period 
after  the  war  is  one  of  a  permanent  higher-price  level. 
The  dollar  is  a  dearer  dollar  the  world  over  because  it 
buys  less.  Some  recessions  from  the  extreme  prices  may 
be  reached,  especially  in  food  commodities,  but  they  are 
not  likely  to  affect  the  general  situation. 

The  year  1919  may  be  taken  as  the  yardstick  for  the 
years  to  come.  Five  years  thereafter,  or  ten  years  there- 
after, it  will  be  possible  to  make  comparisons  on  the  basis 
of  the  year  1919.  To  attempt  comparisons  on  the  basis 
of  1914  would  require  by  laborious  processes  to  set  forth 
what  a  dollar  bought  then  and  what  it  buys  in  the  years 
after  the  war.  It  is  an  unnecessary  labor.  In  fixing 
the  position  of  the  United  States  in  world  commerce  in 
the  future  it  may  therefore  prove  desirable  to  give  closer 
attention  to  quantative  measurement  rather  than  to 
price  measurement,  or  at  least  to  remember  that  the  true 
nature  of  this  foreign  trade  is  not  to  be  judged  solely  by 
tables  of  values.  Dollar  figures  should  be  interpreted 
in  that  light.  They  do  not  impair  the  position  of  the 
United  States  in  international  commerce  as  it  may  be  ex- 
hibited by  values. 

The  essential  elements  of  the  foreign  trade  of  the 
United  States  may  be  classed  as  visible  and  invisible. 
Some  of  them  are  as  clear  as  physical  objects  to  the 
naked  eye,  while  others  are  portrayed  only  through  men- 
tal imagery.  The  quantity  of  goods  exj)orted  and  im- 
ported, the  volume  of  the  movement,  and  the  total  of 
prices  given  in  terms  of  monetary  values  are  a  simple 
matter  of  statistics;  but  there  are  intangible  elements 
which  also  must  be  taken  into  account  in  determining  the 
true  worth  of  foreign  trade  in  the  industrial  and  com- 


mercial movement.  These  include  the  gain  to  domestic 
industries  by  providing  an  outlet  for  excess  products,  the 
domestic  markets  created  by  export  trade,  and  the 
steadying  influence  of  the  foreign  market  on  the  home 
market ;  the  effect  of  the  wages  paid  in  production  and 
distribution,  the  demand  created  for  products  of  the  fac- 
tory through  the  business  built  up  by  investments 
abroad,  and  the  benefits  arising  from  the  employment  of 
bank  reserves  in  international  commerce. 

The  transportation  element  may  be  shown  by  examples 
of  cargoes  originating  at  points  distant  from  the  sea- 
board. A  carload  of  agricultural  implements  shipped 
from  Chattanooga  to  Savannah,  for  export,  before  the 
war,  paid  at  the  rate  of  twenty-five  cents  per  hundred 
pounds  in  carload  lots.  This  meant  |50  for  a  single 
carload  of  20,000  pounds,  or  flOOO  for  a  trainload  of 
twenty  cars.  The  ?1000  freight  on  the  twenty  carloads 
was  divided  be  ween  labor  and  capital,  since  it  was  paid 
out  in  wages,  salaries,  interest  on  bonded  debt,  and  in 
dividends  on  stock.  It  was  an  addition  to  the  amount 
paid  out  in  the  wages  of  production  from  the  primary 
material  until  this  was  transformed  into  a  carload  of 
plows,  for  which  the  Argentine  farmers  paid  the  com- 
munity of  Chattanooga. 

Similar  analysis  may  be  applied  to  a  hundred  carloads 
of  mining  machinery  shipped  from  Chicago  to  New  Or- 
leans for  ocean  carriage  through  the  Panama  Canal  to 
the  mines  of  Peru  and  Chile ;  to  a  trainload  of  coal  from 
the  West  Virginia  mines  to  tidewater  at  Newport  News 
for  sea  freightage  to  Rio  de  Janeiro  or  Buenos  Aires ;  to 
a  cargo  of  crucible  steel  products  from  Pittsburgh  to  New 
York  for  ocean  carriage  to  European  ports;  to  twenty 
carloads  of  wire  products  from  Birmingham  to  Savannah 


10 


AMERICAN  FOREIGN  TRADE 


for  shipment  to  Brazil  and  the  Argentine  Republic ;  to  a 
trainload  of  packing-house  products  from  Kansas  City 
to  New  Orleans  for  distribution  throughout  the  West  In- 
dies ;  to  a  cargo  of  wheat  from  the  Dakotas  or  flour  from 
Minneapolis  to  seaboard  for  carriage  across  the  Atlan- 
tic to  Italy  and  Spain ;  or  to  carloads  of  cotton  from  the 
Texan  plantations  to  Galveston  for  ocean  carriage  to 
Liverpool.  The  deduction  is  clear  that  the  transporta- 
tion of  products  from  the  interior  to  seaboard,  or  to  the 
frontier,  as  in  the  cases  of  Canada  and  Mexico,  is  an 
added  source  of  income  to  the  whole  country  that  would 
not  exist  in  the  absence  of  foreign  trade. 

Another  intangible,  but  very  definite,  benefit  of  foreign 
trade  is  that  of  having  an  excess  of  goods  taken  from 
the  home  market,  and  of  aiding  the  manufacturer  to 
reduce  overhead  charges  and  secure  full  return  on  his 
capital  by  enabling  him  to  employ  his  factory  capacity 
to  its  full  extent.  This  does  not  need  to  be  stated  in 
theoretical  terms.  In  illustration,  the  anarchy  in  Mex- 
ico in  1913  caused  a  falling  off  of  |20,000,000  in  the  ex- 
portation of  products  from  the  United  States,  so  that  the 
factory  output  was  reduced  by  a  definite  quantity,  and 
there  was  less  employment. 

This  meant  just  that  much  subtraction  from  the  gen- 
eral sum  of  industrial  activity  in  the  profitable  employ- 
ment of  labor  and  capital  during  a  year  of  notable  busi- 
ness depression.  The  loss  was  not  entirely  negative 
since  the  purchasing  power  in  the  domestic  market  was 
reduced  by  the  amount  of  money  that  would  have  been 
received  from  these  commodities,  a  loss  to  the  producer 
of  the  raw  material  that  would  have  been  consumed  in 
the  factory,  to  the  wage-earners  who  would  have  turned 
it  into  finished  product,  and  to  the  transportation  com- 


WHAT  FOREIGN  TRADE  IS 


11 


panies  that  would  have  carried  these  products  to  the 
Mexican  markets. 

A  common  method  of  illustrating  the  benefit  of  foreign 
trade  is  the  geographical  one.  This  was  employed  by 
Mr.  Blaine  in  his  campaign  for  enlarging  the  markets 
of  the  United  States  in  South  America.  He  analyzed 
the  cargo  of  an  outgoing  vessel,  the  various  commodities 
of  which  the  cargo  was  made  up,  and  the  part  of  the 
country  from  which  these  commodities  came.  This 
method  might  be  called  the  sentimental  one.  It  is  use- 
ful in  localizing  the  subject. 

The  relation  of  foreign  trade  to  domestic  prosperity 
must  be  determined  in  the  light  of  the  intangible  ele- 
ments as  well  as  of  the  visible  values,  but  even  in  a  com- 
parison of  visible  values  the  tendency  is  to  overestimate 
the  internal  movement  and  to  understate  the  foreign 
movement.  The  wheat-fields  of  the  West  and  the  cot- 
ton-plantations of  the  South  are  drawn  on  by  the  flour- 
mills  and  the  textile  factories  for  raw  material  whether 
their  products  be  consumed  at  home  or  be  sent  abroad. 
The  same  fields  and  the  same  factories  provide  the  in- 
dustrial and  commercial  activities,  so  that  there  is  no 
exact  means  of  separating  the  essentials  of  domestic 
trade  from  the  essentials  of  foreign  trade.  They  are  not 
distinct,  but  blend  together. 

The  factors  of  internal  trade  in  the  United  States,  in 
official  formula,  are  manufactures,  agricultural  prod- 
ucts, mining  products  and  minerals,  fisheries  and  furs, 
the  value  of  imported  goods,  and  the  value  added  to  the 
foregoing  groups  by  transportation.  A  midyear  of  the 
war  period  serves  for  illustration.  An  estimate  on  this 
basis  fixed  the  internal  trade  of  the  United  States  for 
1915  approximately  at  f45,000,000,000.     The  value  of 


'■t 


i 


I  ■  11 


I 


I   ■ 


12 


AMEEICAN  FOBEIGN  TRADE 


the  foreign  trade  for  the  same  year,  as  shown  by  actual 
statistics  of  exportation,  was  a  fraction  less  than  |4,500, 
000,000.  On  this  reckoning  the  foreign  tracie  in  the  year 
given  was  approximately  ten  per  cent,  of  the  commercial 
activities  of  the  country,  without  allowance  for  the 
intangible  values,  such  as  those  noted  above.  It  may 
be  remarked  further  that  the  domestic  movement  of  com- 
merce is  based  very  largely  on  estimates,  while  export 
trade  is  given  in  definite  terms,  based  on  the  specific 
declaration  made  by  shippers  under  regulations  laid 
down  by  the  Government. 

Two  opposite  schools  of  political  thought  in  the  United 
States  are  not  so  far  apart  in  their  mental  attitude  to- 
ward foreign  trade.  To  those  of  the  Chinese-wall  belief 
exports  are  of  no  consequence.  They  would  be  content 
solely  with  the  domestic  movement.  The  other  school, 
that  of  free  trade  tendencies,  while  theoretically  equally 
interested  in  exports  and  imports,  in  practice  shows  lit- 
tle regard  for  exports.  Its  concern  is  for  imports. 
Even  the  scholar  in  politics  sometimes  errs  in  failing 
to  give  to  goods  sent  abroad  their  proper  place  in  the 
commerce  of  the  country.  President  Wilson,  in  a  speech 
at  Cincinnati  in  1916,  declared  that  competent  author- 
ity placed  the  export  trade  of  the  United  States  at  only 
four  per  cent,  of  the  total  commercial  movement  of  the 
country.  One  of  the  statistical  bureaus  of  the  Govern- 
ment, the  Bureau  of  Foreign  and  Domestic!  Commerce, 
reached  a  different  conclusion,  as  follows: 

Factors  of  Internal  Trade  of  the  United  States  1915 

Manufactures  produced,   1915    $27,800,000,000 

(Based  on  Official  Census,  1914,  which  gave 
$24,246,323,000.) 
Agricultural  products 10,500,000,000 


WHAT  FOREIGN  TRADE  IS  13 

Mining  Products,  minerals,  etc $  2,500,000,000 

Fisheries,  furs,  etc 500,000,000 

Value  of  imported  goods,   1915    1,700,000,000 

Value  added  to  foregoing  groups  by  transpor- 
tation          2,000,000,000 

(Freight  earnings  of  leading  railways.  In- 
terstate Commerce  Commission.) 

Total  Internal  trade     $45,000,000,000 

Value  of  foreign  commerce,  fiscal  year,  1915  $  4,442,759,000 
Relation  of   foreign  trade  to   estimated  in- 
ternal trade,     9.83  per  cent. 

The  turn-over  of  a  country's  business,  as  measured  by 
bank  clearings,  stock  sales,  and  similar  transactions,  is 
not  a  true  standard  on  which  to  determine  the  compara- 
tive values  of  domestic  and  export  trade.  It  presents  a 
series  of  duplications.  Production  is  a  more  certain 
standard.  It  reaches  back  from  the  goods  either  on  the 
sales-counter  or  on  board  the  outgoing  vessel,  to  the 
farm  and  the  forest,  the  mine  and  the  factory.  The 
broad  view  is  the  one  to  be  taken.  This  recognizes  that 
domestic  trade  and  foreign  trade  are  not  actually  sep- 
arable in  determining  the  factors  in  national  prosperity. 
They  are  interworking  and  interdependent,  mutually  sus- 
taining and  strengthening  each  other. 

With  this  brief  exposition  of  what  constitutes  for- 
eign trade  and  its  relation  to  domestic  prosperity,  the 
place  of  the  United  States  in  world  commerce  may  be 
described.  As  an  exporting  country  it  has  progressed 
from  the  primitive  barter  of  surplus  farm  products  and 
the  raw  materials  of  industries  to  the  sending  abroad  of 
all  classes  of  manufactured  products.  The  nature  of 
this  transformation  is  shown  vividly  in  the  exports  of 
agricultural    machinery.     John    Deere,    the    Vermont 


■i: 


i'  li' 


I  l! 


14 


AMERICAN  FOREIGN  TRADE 


blacksmith  who  settled  on  the  prairies  of  Illinois  and  re- 
placed the  crude  iron  blade  of  the  pioneer  farmer  by  steel 
plows,  was  one  of  the  leaders  in  the  transition  from  the 
export  of  agricultural  products  to  manufactured  articles. 
The  chilled  plow  of  John  Oliver  was  anotht^r  chapter  in 
this  trade  expansion.  Cyrus  McCormick,  Hussey,  Whit- 
ley, Warder,  and  their  rugged  generation  of  inventors 
and  forceful  manufacturers  made  the  romance  of  the 
reaper  in  the  Mississippi  Valley  a  world  romance.  So  it 
was,  too,  with  the  threshing  machine. 

At  the  close  of  the  Civil  War  the  enterprise  of  these 
pioneer  makers  of  farm  machinery  had  opened  a  for- 
eign market  for  agricultural  implements  to  the  amount 
of  a  million  dollars.  The  exports  were  almost  station- 
ary for  the  next  ten  years.  Then  they  began  to  grow, 
and  the  growth  was  rapid  until  the  business  of  exporting 
agricultural  machinery  became  a  distinctively  national 
one.  This  is  the  progress  in  the  exports  through  the  dif- 
ferent periods : 

1893  1898  1903  1908  1913 

$5,027,000  $12,432,000   $21,006,000   $22,073,000   $40,572,000 

The  blast-furnace,  with  its  multiform  products,  is  the 
most  comprehensive  and  illuminating  chapter  in  the 
commercial  expansion  of  the  United  Stat(?s  and  affords 
the  most  striking  illustrations  of  the  changing  nature  of 
American-foreign  trade.  The  eye  in  traveling  across 
the  page  sees  the  march  of  exports  of  iron  and  steel  and 
their  manufactures  in  this  wise : 


1893 
$30,106,000 


1898 
$70,400,000 


1908 
$184,000,000 


1913 
$304,600,000 


, . 


The  slender  thread  which  transmits  the  mysterious 


WHAT  FOREIGN  TRADE  IS 


15 


force  of  nature  into  myriad  industrial  activities  is  an- 
other example  of  the  new  industrial  factors  in  interna- 
tional commerce  which  have  entered  into  the  changing 
nature  of  the  foreign  trade  of  the  United  States.  The 
statistical  story  of  the  red  metal  is  paragraphic.  It 
is  told  in  the  statement  that  in  1913  the  exports  of  do- 
mestic copper  and  its  manufactures,  excluding  ore, 
amounted  to  |140,165,000  as  against  $4,525,000  in  1893. 
The  electrical  industry  development  is  a  chapter  in  cop- 
per. In  1914  the  exports  of  electrical  machinery  and 
appliances  were  approximately  $25,000,000.  In  1893 
they  were  not  important  enough  to  have  a  category  of 
their  own,  but  were  included  under  iron  and  steel  pro- 
ducts. 

The  modern  miracle  of  the  motor  vehicle  and  its  ac- 
cessories is  an  even  more  striking  instance  of  the  chang- 
ing characteristics  of  American  export  trade.  It  starts 
with  a  cipher.  In  1900  there  were  no  statistics  of  ex- 
ports of  automobiles  and  their  accessories.  In  1914  the 
exports  were  $38,000,000.  The  war  year  1917  carried 
them  to  more  than  $100,000,000.  Possibly  the  aircraft 
of  commerce  will  show  a  similar  rapid  growth. 

Evidence  of  the  transformation  in  the  character  of  the 
exports  of  the  United  States  is  exhibited  in  two  twelve- 
month periods  twenty  years  apart.     It  follows : 

Exports  of  Domestic  Merchandise^ 
Crude  Crude  Prepared 

materials       materials        or  semi-  Semi-manu-      Manu- 

for                  for              prepared  factured  factured 

manufactures   food-stuflFs     food-stuffs  articles  articles 

$247,289,000  $153,278,000  $247,075,000  $  49,070,000  $130,000,000 

731,768,000     187,907,000     321,204,000  408,807,000  776,297,000 

^  The  statistics  relating  to  American  trade  in  these  pages  are  drawn 
principally  from  the  Statistical  Abstract  of  the  United  States,  the 
annual  summary  of  Commerce  and  Navigation,  and  the  other  official 


1893. 
1913. 


I 


16 


AMERICAN  FOREIGN  TRADE 


The  most  striking  feature  of  the  foreign  trade  of  the 
United  States  in  the  future  clearly  will  be  the  dominance 
of  manufactured  and  semi-manufactured  products  in  ex- 
ports, and  the  predominance  of  raw  material  for  man- 
ufactures and  of  food-stuffs  of  the  tropics  in  imports. 
This  in  large  degree  indicates  what  world  markets  will 
be  most  sought. 

Readjustment  of  the  visible  and  invisible  elements  en- 
tering into  the  nation's  balance  of  trade  is  one  of  the 
economic  events  of  the  present.  Some  of  these  factors 
are  entirely  shifted.  The  payment  of  ocean  freights  and 
insurance  to  foreign  companies  virtually  is  ended  by  the 
establishment  of  the  American  merchant  marine.  That 
was  formerly  one  of  the  principal  items  in  offsetting  the 
nominal  excess  of  exports  over  imports.  Against  this  is 
the  probability  that  the  invisible  balance  due  to  remit- 
tances by  European  families  to  kinsfolk  will  be  larger 
than  in  any  period  previous  to  the  Great  War.  The  mar- 
gin which  thrift  offers  above  the  cost  of  living  will  be 
drawn  on  more  heavily  than  ever  to  replenish  distressed 
Europe.  Moreover,  the  international  travel  account, 
sometimes  called  tourist  outlay,  which  always  was  a 
counterbalancing  factor,  will  be  augmented  in  favor  of 
Europe.  Individual  Americans  and  groups  of  Ameri- 
cans, whether  drawn  by  morbid  curiosity  to  historic  bat- 
tle-fields, or  moved  by  nobler  sentiments,  will  travel  over 
the  Continent  in  much  larger  numl>ers  than  ever  before. 

Interest  payments  abroad  on  many  kinds  of  American 
securities,  on  the  other  hand,  will  suffer  a  sensible  dim- 
inution, due  to  their  return  to  the  United  States  in  the 

reports  of  the  several  Departments  of  the  Government.  It  has  not  been 
thought  necessary  to  indicate  them  by  special  references  except  in  a  lew 
instances. 


WHAT  FOREIGN  TRADE  IS 


17 


early  period  of  the  war.  Offsetting  the  reduction  of  in- 
terest in  dividends  remitted  by  the  United  States  on  se- 
curities of  private  companies  will  be  the  interest  pay- 
ments on  the  war  loans  made  to  the  Government  of  the 

United  States  by  the  several  governments  of  the  Allied 
nations. 

In  the  initial  stages  of  international  settlements  after 
the  war  the  prospect  was  crisply  put  as  a  question  of 
gold  or  goods.  That  is,  would  the  United  States  seek 
to  add  to  its  enormous  hoard  of  gold  by  exacting  further 
payments,  or  would  it  take  goods,  which  might  glut  its 
own  market?  The  situation  was  not  so  acute.  The 
other  alternative  was  offered  of  taking  foreign  securities. 
This  means  principally  the  obligations  of  private  cor- 
porations in  European  countries  with  or  without  the 
backing  of  their  governments. 

The  bare  payment  of  interest  on  large  volumes  of  these 
securities  will  in  itself  be  another  factor  in  the  interna- 
tional trade  account.  The  quantities  of  American  ma- 
terial which  will  enter  into  this  rehabilitation  are  an 
important  element  in  the  somewhat  intricate  process  of 
the  export  of  capital,  but  they  are  clearly  a  means  of  add- 
ing to  the  export  trade  of  the  United  States.  They  are 
a  form  of  investments  abroad. 

Detailed  calculation  of  this  factor  is  not  necessary  in 
a  general  survey  of  the  prospective  export  commerce. 
The  supreme  fact  is  that  the  United  States  has  become 
a  lending  country,  a  creditor  nation.  The  lending 
power  of  the  Federal  Reserve  Act  is  one  of  the  ele- 
ments in  its  new  status,  but  this  power  is  not  applied 
solely  to  the  European  war  area.  It  has  broader 
prospects  in  fields  such  as  South  America  and  China. 
In  determining  the  circumstances  of  its  foreign  trade, 


I 


1 

7        1  •. 


18 


AMERICAN  FOREIGN  TRADE 


the  United  States  will  view  the  world  as  one  mar- 
ket, but  it  will  segregate  the  various  groups  marked 
by  geographical  lines  and  economic  conditions  pecu- 
liar to  themselves.  It  will  take  account  of  the  change 
in  the  nature  of  its  exports  from  agricultural  to  manu- 
factured products,  but  it  will  not  entirely  ignore  the 
place  of  farm  products  in  this  future  trade.  They  call 
for  consideration  before  entering  into  other  aspects  of 
the  subject. 


CHAPTER  II 

THE  FARM   IN  FOEEIGN  TEADB 

Economic  basis  of  the  new  agriculture  —  Checking  the  food  waste  — 
War-time  production  —  A  bushel  of  wheat  per  person  in  export  trade  — 
Com  and  swine  —  Cattle  and  meat  products  —  Cotton  as  a  factor  in 
foreign  business  —  Insufficiency  of  production  outside  the  United  States 
—  Lancashire's  futile  efforts  —  Reflex  influence  of  crops  on  domestic 
prosperity  —  The  American  farmer's  prospects. 

THERE  is  a  new  agriculture  in  the  United  States. 
It  is  not  a  creation  or  a  consequence  of  the 
Great  War.  It  was  brought  into  vigorous  life 
in  the  last  third  of  the  century  before  the  war.  Its 
functions  during  that  period  were  beneficently  exercised 
in  increasing  production  of  staple  crops  to  meet  a  phe- 
nomenal emergency.  Its  functions  in  the  future  are 
to  fix  a  definite  place  for  itself  in  international  food 
economics  and  to  fix  the  position  of  the  American  farm 
in  foreign  trade. 

The  new  agriculture  takes  account  of  economic  pro- 
duction, economic  distribution,  and  economic  consump- 
tion. It  recognizes  that  the  old  basis  of  foreign  trade, 
in  which  farm  products  formed  the  bulk  of  the  exports, 
is  gone,  yet  it  does  not  assume  that  the  prosperity  of 
the  farmer  is  to  be  maintained  by  discouraging  exports 
of  agricultural  crops  on  the  theory  that  all  that  can  be 
obtained  from  the  soil  is  needed  for  domestic  consump- 
tion. 

Aware  that  the  United  States  is  virtually  self-sustain- 
ing in  the  production  of  food  supplies  for  an  increasing 

19 


I 
I 


» 


20 


AMERICAN  FOREIGN  TRADE 


population,  it  seeks  to  adjust  agricultural  exports  to 
the  changes  that  have  come  upon  the  country  through 
the  growth  in  the  exportation  of  manufactured  commodi- 
ties, and  to  adapt  itself  to  the  greater  changes  which  are 
yet  inchoate,  but  which  are  sure  to  follow  the  transition 
from  the  upheaval  of  trade  and  industry  on  account  of 
the  war  developments  to  commerc^ial  intercourse  in  nor- 
mal circumstances.  American  agriculture  was  awak- 
ened, quickened,  vivified  by  the  war  demands,  but  it  will 
require  time  to  find  its  place  in  the  new  adjustments  of 
international  trade  relations. 

The  first  consideration  is  that  the  situation  should  be 
met  by  an  intelligent  organized  (!lass  of  producers  who 
understand  the  economic  basis  of  the  industry-  in  which 
they  are  engaged.  The  farmer  as  a  business  man  is  no 
longer  a  myth.  Unceasing  educational  propaganda  by 
the  National  Government,  supj)lemented  by  the  state 
governments,  has  placed  farming  on  a  level  with  other 
forms  of  productive  activities.  Moreover,  every  year  an 
increasing  number  of  young  men  are  graduated  from 
agricultural  colleges  and  similar  institutions.  They 
have  been  taught  what  scientific  farming  is  and  how  it 
should  be  managed  on  a  business  basis.  Rapidly  they 
are  supplanting  the  old-time  agriculturist,  who  grew  and 
marketed  his  crops  in  a  haphazard  way,  and  never  knew 
whether  he  was  making  money  or  losing  money.  It  is 
therefore  the  farmer  as  a  business  man  who  in  the  future 
is  to  be  looked  to  in  determining  the  place  of  the  farm 
in  foreign  trade  as  well  as  in  domestic  business.  He 
also  may  be  depended  on  to  understand  the  mutual  rela- 
tion of  the  farm  and  the  factory  in  its  international,  as 
well  as  in  its  national,  bearing. 

The  new  agriculture,  in  the  greater  attention  it  gives 


^ 


THE  FARM  IN  FOREIGN  TRADE 


21 


to  the  processes  of  production  and  distribution,  fixes  the 
position  of  farm  products  in  export  commerce.  The  war 
stimulus  will  be  more  than  temporary,  yet  always  it 
should  be  borne  in  mind  that  agricultural  production  is 
a  business  proposition.  The  city  farmer,  who  sits  at  the 
editorial  table  of  the  newspapers  and  institutes  back-to- 
the-land  movements,  and  who  tells  the  farmer  on  the 
farm  the  need  of  raising  more  wheat  or  milch  cows  or 
beef  cattle,  or  of  rotating  his  crops  more  systematically, 
is  not  the  person  best  fitted  to  advise  what  should  be 
done.  The  farmer  will  do  all  these  things  when  he  sees 
a  profit  in  them,  and  when  he  is  able  to  find  the  labor 
required,  since  his  business,  while  subject  to  more  un- 
certainties than  commercial  business,  nevertheless  is 
based  on  growing  crops  and  raising  live  stock  for  profit. 
There  is  profit  for  him  in  foreign  trade,  but  he  must  be 
convinced  that  this  is  so  before  he  will  concern  himself 
as  to  the  best  methods  of  bringing  it  about  that  a  definite 
proportion  of  his  products  in  one  form  or  another  find 
its  way  abroad. 

Managing  his  business  from  this  point  of  view,  the 
farmer  is  concerned  as  an  observer  as  well  as  a  pro- 
ducer. As  an  observer,  while  noting  stolidly  the  crit- 
icism of  his  own  wasteful  methods  of  production,  he 
takes  note  of  the  American  habit  of  extravagance  in  con- 
sumption. Riotous  wastage  of  food  by  American  fam- 
ilies has  been  the  wonder  of  foreign  economists  and  the 
despair  of  domestic  economists.  The  estimate  of  the 
Department  of  Agriculture  in  1914  was  that  |700,000,- 
000  was  wasted  annually.     This  was  an  enormous  loss. 

In  the  past  exhortations  to  increased  eflSciency  in  con- 
sumption through  persuading  the  great  body  of  consum- 
ers to  be  more  saving  had  little  effect.    The  American 


f      w 


f 


22 


AMERICAN  FOREIGN  TRADE 


family  is  a  spending  family,  and  its  marked  trait  is  con- 
tempt for  petty  saving.  High  cost  of  living  in  the  midst 
of  prosperity,  with  everybody  employed,  is  one  remedial 
agency  that  is  working  a  reform.  Even  before  the 
United  States  entered  the  war,  the  family  market-basket 
could  not  be  filled  so  lavishly  as  formerly.  In  conse- 
quence, its  contents  had  to  go  further.  American  fam- 
ilies were  becoming  less  wasteful  because  they  lacked 
the  means  of  being  extravagant.  It  also  is  possible  that 
the  increased  production  of  food-stuffs,  through  family 
gardening,  engendered  by  the  war  stimulus  to  patriotic 
energies,  as  well  as  by  the  pinch  of  necessity,  will  not 
pass  as  an  emotional  spasm  that  will  spend  itself  in  a 
single  season,  but  will  have  lasting  results. 

American  agriculture  responded  sympathetically  to 
the  encouragement  given  it  in  the  war  emergency.  The 
whole  story  can  be  briefly  told.  The  prospective  demand 
was  the  incentive.  The  acreage  planted  was  the  re- 
sponse. In  1914  the  com  acreage  was  103,435,000;  in 
1918  it  was  130,835,000  acres.  The  wheat  acreage  was 
54,661,000  and  64,590,000  acres  in  the  same  years  re- 
spectively. Yields  are  subject  to  climatic  conditions, 
but  they  are  measurably  proportionate  to  acreage 
planted.  The  com  crop  in  1914  was  2,673,000,000 
bushels ;  in  1918,  2,749,000,000  bushels.  The  wheat  crop 
in  1914  was  891,000,000  bushels;  in  1918,  919,000,000 
bushels.  The  live-stock  industry  was  equally  responsive. 
Beef  cattle  in  1914  numbered  35,855,000;  in  1918,  43,- 
546,000.  Swine  were  59,000,000  and  71,374,000  in  the 
respective  years.  Sheep  alone,  whether  for  mutton  ot 
for  wool,  failed  to  show  an  increase.  Meat  jiroduction 
as  a  whole  was  5,000,000,000  pounds  greater  in  1918  than 


THE  FARM  IN  FOREIGN  TRADE 


23 


in  1900.  The  actual  production  was  23,366,000,000 
pounds.^ 

What  might  be  called  the  guaranteed  inducement 
for  this  increase  in  the  cereals  and  in  live  stock  and 
beef  products  was  the  act  of  Congress  of  August  10, 
1917,  empowering  the  President  to  fix  a  reasonable  price 
for  wheat, —  and  supplemental  legislation  in  connection 
with  food  supplies  for  the  Allies.  The  gu^iranteed 
price  fixed  for  the  wheat  crop  of  1917  was  |2.20  per 
bushel,  and  |2.26  per  bushel  for  that  of  1918  and  1919. 
Before  this  legislation  had  been  enacted  and  before  the 
United  States  became  a  belligerent,  the  incentive  had 
been  the  lessened  production  in  large  areas  on  account 
of  the  war,  and  the  fixed  and  definite  needs  which  it 
was  known  would  have  to  be  supplied  for  the  Allies. 

This  war-time  production  is  a  true  measure  of  the 
possibilities  of  American  agriculture  in  foreign  trade. 
Wheat  is  the  world's  great  competitive  food  product, 
and  wheat  exports  in  the  form  of  grain  and  flour  have 
been  of  inestimable  value  to  the  American  farmer.  On 
the  basis  of  one  hundred  million  inhabitants,  the  United 
States  required  annually  650,000,000  bushels  of  wheat 
for  consumption  and  for  seeding.  The  five-year  average 
up  to  1917  was  728,000,000  bushels.  This  included  the 
bumper  crop  of  1915,  which  was  in  excess  of  1,000,000,- 
000  bushels,  and  the  shortage  which  affected  the  winter- 
wheat  crop  of  1917.  It  is  of  no  economic  consequence 
that  during  the  early  war  period  exports  ranged  from 
240,000,000  to  332,000,000  bushels  annually.  Regard- 
less of  war  conditions,  there  is  an  average  of  production 

1  These  and  other  statistics  are  taken  from  the  "Agricultural  Year 
Book,"  and  from  the  report  of  the  Secretary  of  Agriculture  for  1918. 


1 


u 


24 


AMERICAN  FOREIGN  TRADE 


II 


>    I 


and  consumption  in  the  United  States,  with  a  normal 
surplus  for  export. 

The  exports  of  wheat  in  ordinary  times  previous  to 
the  war  were  105,000,000  bushels  annually.  According 
to  the  statement  of  the  secretary  of  agriculture,  this  was 
a  small  fraction  more  than  one  bushel  production  per 
person  in  the  United  States.  The  economic  proposi- 
tion, therefore,  is  to  keep  the  wheat  production  moving 
with  the  growth  in  population  so  that  there  may  be  an 
average  surplus  of  one  bushel  per  capita  for  export  left 
over  from  domestic  consumption.  With  the  constantly 
increasing  efficiency  in  production,  through  the  coopera- 
tion of  the  wheat-grower  with  the  governmental  and 
state  agencies,  there  is  no  ground  for  assuming  that  this 
surplus  cannot  be  kept  up.  The  proportion  of  wheat 
manufactured  into  flour  for  export  also  should  be  main- 
tained. It  would  be  as  great  folly  to  discourage  exports 
of  flour  as  to  discourage  wheat  exports. 

Corn,  it  has  been  said,  is  the  great  American  farm 
crop,  and  an  average  annual  production  approximating 
3,000,000,000  bushels  justifies  this  statement;  but  it  is 
further  said  that  corn  is  not  an  export  crop,  since  the 
quantities  shipped  abroad  rarely  exceed  two  per  cent, 
of  the  total  production,  and  in  some  years  fall  below 
one  per  cent.  It  might  be  observed  that  the  exportation 
of  50,000,000  bushels  of  corn,  valued  at  $30,000,000,  as 
was  the  case  in  1915,  is  not  a  negligible  item  in  the  pros- 
perity which  foreign  trade  brings  to  the  American 
farmer.  But  the  production  of  corn  is  not  to  be  con- 
sidered solely  with  reference  to  its  exportation  in  its 

primary  form. 

Years  ago,  when  James  Wilson  taught  the  farmers  of 
Iowa  the  increased  value  of  their  corn  crop  if  turned 


|i 


THE  FARM  IN  FOREIGN  TRADE 


25 


into  hogs,  he  demonstrated  its  worth  not  only  in  domestic 
trade,  but  also  in  foreign  commerce.  The  State  of  Iowa 
raises  approximately  10,000,000  swine  annually,  and  one 
of  the  principal  sources  of  its  prosperity  is  pork 
products.  The  lard  that  goes  to  the  West  Indies  and 
Peru,  the  bacon  and  ham  that  go  to  Cuba  and  Brazil, 
and  the  sundry  other  meat  products  are  all  essential 
factors  in  Iowa's  prosperity.  There  has  been  no  de- 
crease in  the  number  of  swine  in  the  United  States.  On 
the  contrary,  the  number  increased  from  58,185,000  in 
1910,  to  67,453,000  in  1917.  While  the  increase  is  not 
proportionate  to  the  growth  in  population,  there  is  no 
marked  disproportion. 

What  is  true  of  hog  products  is  true  of  other  meat 
products.  For  several  years  cattle-raising  was  station- 
ary, and  it  was  feared  that  through  the  breaking  up  of 
the  big  ranches  in  the  West  there  would  be  a  permanent 
decrease  in  production;  but  the  farmers  began  to  raise 
more  cattle  on  the  farm  when  they  became  satisfied  that 
this  could  be  done  profitably.  In  consequence,  in  1917 
there  were  63,617,000  head  of  cattle,  including  milch 
cows,  as  against  61,803,000  in  1910.^ 

Study  of  all  these  agricultural  products  shows  clearly 
that  the  United  States  can  produce  them  in  quantities 
more  than  sufficient  for  the  needs  of  its  own  people  even 
though,  as  with  meats,  the  per  capita  consumption  in- 
creases. One  year  it  may  have  a  considerable  excess  of 
wheat.     Another  year  the  corn,  or  maize,  although  rela- 

1  The  Department  of  Agriculture,  in  the  statistics  of  farm  animals, 
estimates  45,500,000  cattle  other  than  milch  cows  in  1901,  and  the 
variations  in  the  intervening  period  are  upward  to  35,855,000  in  1914. 
In  1907  the  price  per  head  on  the  farm  was  $17.10;  in  1911,  $20.54; 
in  1917,  $35.88.  The  lowest  price  since  1900  was  $15.15  in  1905,  when 
there  were  43,669,000  head. 


26 


AMERICAN  FOREIGN  TRADE 


tively  a  small  percentage  of  the  crop  is  exported,  may  add 
appreciably  to  the  price  obtained  abroad  for  the  yield 
of  American  agriculture.  Again,  it  may  be  that  the 
tobacco  crop  will  prove  unusually  large,  or  the  prices 
unusually  good.  Occasionally,  there  may  be  a  surplus 
of  meat  products.  Dairy  produce  may  be  the  next  com- 
modity of  which  considerable  quantities  can  be  spared. 
Taken  with  cotton,  they  go  to  form  a  varied  list  of 
exports,  and  in  the  variety  is  the  certainty  that  every 
year  the  grain-fields  and  the  cotton-plantations  con- 
tribute to  the  value  of  American  foreign  trade. 

Cotton  is  a  farm  product  because  the  plantation  is 
only  a  huge  farm.  It  ranks  second  in  value  among  the 
crops  of  the  United  States.  It  is  the  most  important 
commercial  crop.  Approximately  three  fifths  of  the 
world^s  cotton  is  produced  in  the  Southern  States.  The 
production  has  increased  since  1840  at  a  rate  somewhat 
greater  than  the  population.^ 

Until  the  beginning  of  the  Great  War  the  proportion 
of  the  product  exported  ranged  l)etween  sixty -five  and 
seventy  per  cent,  of  the  total  production.  It  might  be 
desirable  to  use  a  larger  portion  of  the  raw  cotton  in 
the  domestic  mills  and  to  send  it  abroad  in  the  form  of 
manufactured  goods ;  but  this  process  is  going  on  slowly, 
and  cannot  be  hastened  by  artificial  means.  Assuming 
that  a  larger  percentage  gradually  will  be  utilized  in 
this  manner,  the  United  States  always  will  have  an 
enormous  quantity  for  export.  Cotton  is  the  greatest 
raw  asset  in  foreign  trade. 

A  question  which  obtrudes  itself  is  whether  competi- 
tive production  in  other  countries  will  reduce  the  de- 

1"  Geography  of  the  World's  Agriculture,"  Department  of  Agricul- 
ture, Washington,  1917. 


11! 


THE  FARM  IN  FOREIGN  TRADE 


27 


mand  for  American  cotton.  To  answer  this  question, 
a  brief  survey  of  the  cotton  areas  of  the  world  is  suffi- 
cient. After  the  United  States  come  India,  Egypt,  and 
the  Russia  that  was.  In  the  Southern  Continent  the 
principal  producer  is  Brazil,  which  in  some  years 
approximates  500,000  bales.  Other  widely  scattered 
regions  —  Japan,  China,  British  Africa,  British  West 
Indies,  the  Dutch  East  Indies  —  produce  relatively 
small  quantities. 

For  years  the  Lancashire  mills  have  had  a  settled 
policy  of  making  themselves,  if  not  independent,  at 
least  less  dependent,  on  the  cotton-fields  of  the  United 
States.  They  have  encouraged  the  growing  of  the  staple 
in  all  of  the  tropical  British  dependencies.  They  have 
been  supported  in  this  experiment  by  the  Imperial  Gov- 
ernment and  by  the  various  colonial  governments.  The 
result  has  not  been  encouraging. 

Egypt  is  one  of  the  most  valuable  sources  of  supply 
under  the  British  flag.  Under  the  system  of  irrigation 
by  which  the  waters  of  the  Nile  have  been  rendered  more 
tractable,  the  cotton  area  has  been  extended  until  the 
limit  has  been  reached.  Egyptian  cotton  is  wanted  by 
all  the  world,  including  the  United  States,  since  it  is 
necessary  in  mixing  with  the  coarser  fibers;  but  even 
though  the  supply  were  to  be  monopolized  by  Great 
Britain,  the  Lancashire  mills  would  still  lack  the  bulk  of 
the  raw  material  required. 

The  Egyptian  cultivation  has  been  extended  to  the 
Sudan.  The  soil  there  is  suitable,  but  the  main  ques- 
tion is  one  of  labor,  and  the  Sudanese  do  not  take  kindly 
to  field  labor.  The  black  Mohammedan  finds  that  his 
wives  and  his  concubines  are  able  to  support  him  with- 
out contributing  their  energies  to  the  cotton-field,  while 


;-i: 


I 


n 


ii 


28 


AMERICAN  FOREIGN  TRADE 


he  himself  disdains  the  status  of  an  agricultural  laborer. 
The  experts  who  studied  the  soil  of  the  Sudan  for  the 
British  Government  were  competent,  and  their  conclu- 
sions as  to  its  suitability  were  correct ;  but  they  took  no 
account  of  the  labor  question.  The  cotton  production 
of  the  Sudan  does  not  exceed  10,000  bales  a  year,  fewer 
than  a  single  section  in  Georgia. 

India  cotton  has  shown  little  improvement  in  quality 
through  half  a  century,  notwithstanding  all  the  eifforts 
to  better  it.  Nor  has  the  area,  even  under  irrigation, 
materially  increased.  India  cotton,  Surat,  is  still  es- 
sential to  Manchester,  but  only  for  mixing  with  Ameri- 
can cotton.  The  Lancashire  spinner  who  during  the 
Civil  War  interjected  into  a  prayer  for  more  cotton  the 
ejaculation,  "  Yes,  O  Lord,  but  not  Surat,"  could  repeat 
that  invocation  to-day. 

Finally,  there  are  the  British  tropical  colonies,  the 
Leeward  Islands  and  others  of  the  West  India  posses- 
sions; Cyprus,  in  the  Mediterranean;  and  the  African 
dependencies.  Their  total  production  does  not  equal 
that  of  half  a  dozen  counties  in  South  Carolina. 

Russian  territory  is  the  most  promising  source  of  in- 
creased cotton  production  outside  of  the  United  States. 
The  cotton  area  is  situated  in  Turkestan,  or  central  Asia, 
and  in  Transcaucasia.  Extensive  irrigation  is  required 
in  Turkestan,  and  the  increase  in  the  cultivatable  area  is 
slow.  It  will  be  years  before  Russia  will  produce  2,000,- 
000  bales  of  cotton. 

There  remain  the  areas  which,  in  the  judgment  of 
cotton-growers,  are  suitable  for  cultivation,  but  which 
are  yet  unexploited.  Asia  Minor  is  the  principal  one  of 
these  regions.  The  possibility  of  turning  it  into  a  huge 
cotton-field  was  one  of  the  motives  of  Germany's  eco- 


THE  FARM  IN  FOREIGN  TRADE 


20 


nomic  penetration  into  Asiatic  Turkey.  Yet  even  had 
Germany's  ambition  been  realized,  she  could  not  have 
raised  enough  cotton  in  Asia  Minor  to  supply  her  own 
wants.  Expert  investigation  has  shown  that  the  crop 
which  ultimately  might  be  produced  at  the  most  would 
barely  equal  the  production  of  the  State  of  Mississippi  in 
normal  years.  Mississippi's  production  is  1,000,000  to 
1,500,000  bales  per  year. 

The  conclusion  is  clear  that  cotton  will  continue  in- 
definitely to  be  the  dominant  factor  in  the  export  trade 
of  the  United  States  that  is  dependent  on  agricultural 
production.  Approximately,  it  means  half  a  billion 
dollars  annually. 

With  the  certainty  that  the  United  States  will  con- 
tinue to  produce  wheat  and  other  cereal  crops  and  cotton 
in  excess  of  its  own  needs,  and  that  there  will  be  some 
excess  of  live-stock  products  over  the  domestic  con- 
sumption, the  importance  of  the  farm  and  the  cotton 
plantation  in  international  commerce  becomes  clear.  It 
is  in  the  variety  of  these  products  that  lies  the  reason 
for  treating  them  as  an  essential  element  of  foreign 
trade. 

A  pertinent  illustration  of  the  reflex  influence  of  the 
agricultural  crops  on  domestic  prosperity  when 
marketed  abroad  is  found  in  an  official  report  made  be- 
fore the  United  States  became  a  belligerent. 

Two  things  have  occurred  since  the  beginning  of  the 
European  war  that  have  awakened  a  lively  interest  in  foreign 
trade  in  certain  parts  of  this  country  where  heretofore  there 
had  been  little  or  no  interest  in  commerce  of  that  character, 
or  in  matters  of  international  importance.  Upon  the  out- 
break of  the  European  war  the  price  of  cotton  declined 
enormously.    It  declined  to  a  point  probably  below  the  bare 


'I 


30 


AMERICAN  FOREIGN  TRADE 


cost  of  production,  and  thousands  of  planters  in  one  entire 
section  of  our  country  found  themselves  not  only  deprived 
of  their  profits  but  actually  facing  financial  ruin.  Merchants 
and  banks,  that  had  extended  credits  to  the  growers  of  cotton, 
were  confronted  by  an  equally  serious  condition.  The  whole 
situation  had  been  brought  about  merely  because  a  part  of 
the  European  market  for  cotton  had  suddenly  been  cut  off. 
And  every  intelligent  grower  of  cotton,  every  well-iaformed 
merchant  and  banker,  in  those  districts  where  cotton  is  the 
staple  crop,  suddenly  realized  what  foreign  trade  and  an  ex- 
port market  meant  to  them. 

During  the  same  period,  but  perhaps  with  not  quite  the 
same  suddenness,  another  great  section  of  the  country,  the 
wheat-producing  belt,  found  itself  in  the  midst  of  unpre- 
cedented prosperity.  In  spite  of  the  fact  that  a  bumper  crop 
—  the  largest  in  the  history  of  the  United  States  —  had  been 
harvested  prices  went  to  levels  heretofore  unknown.  And 
this  again  simply  because  some  of  the  great  wheat  producing 
sections  of  the  world  had  suddenly  been  cut  off  from  their 
usual  markets  in  western  Europe,  and  the  demand  for  Ameri- 
can products  consequently  increased,  and  the  western  farmer, 
the  grower  of  wheat,  the  merchant  and  the  banker  in  that  part 
of  the  country,  found  out,  as  never  before,  how  important 
foreign  trade  was  to  them.^ 

Agriculture  is  the  greatest  of  the  resources  of  recon- 
struction following  any  war.  Basic  production  pro- 
ceeds more  rapidly  than  with  industrial  rehabilitation. 
German  thoroughness  in  devastating  the  part  of  France 
that  was  occupied  was  unparalleled  in  its  systematic 
and  scientific  fiendishness.  It  made  early  rehabilitation 
of  that  region  impracticable,  and  by  that  much  reduced 
the  reproductive  capacity  of  the  French  soil  for  several 
years.  But  this  agricultural  area  was  relatively  a  small 
one  in  relation  to  the  world's  agriculture. 


1  Report  of  Dr.  E.  E.  Pratt,  Chief  of  Bureau  of  Foreign  aod  Domestic 
Commerce,  1916. 


THE  FARM  IN  FOREIGN  TRADE 


31 


Other  war  areas  which  suffered  some  destruction  will 
be  rendered  reproductive  sooner,  because  this  was  the 
ordinary  military  destruction  and  not  the  calculated 
scientific  destruction.  Still  other  areas,  such  as  the 
disturbed  portions  of  Russia,  prove  a  substantial  sub- 
traction from  normal  productiveness. 

Outside  of  Russia  and  central  Europe,  the  great  pro- 
ductive regions  of  the  world,  those  of  the  United  States, 
of  Canada,  India,  Australia,  and  South  America,  suf- 
fered no  interference.  Instead,  they  enjoyed  the  stimu- 
lus of  highly  profitable  markets  for  agricultural 
products. 

The  effect  of  the  war  measures  taken  by  the  various 
European  governments  for  stimulating  agricultural  pro- 
duction cannot  be  determined  at  once.  Yet  it  may  be 
generally  assumed  that  some  advance  has  been  made, 
although  European  agriculture  is  the  systematized  out- 
growth of  centuries  and  does  not  offer  a  wide  field  for 
further  improvement.  In  the  United  States  the  effect 
of  the  measures  taken  is  likely  to  be  more  than  tempo- 
rary. Cooperation  in  feeding  the  Allies,  through  a  sav- 
ing in  home  consumption  and  by  the  conservation  of 
food-stuffs,  through  enhanced  production,  and  through 
distribution  regulated  systematically,  affords  the  lesson 
for  the  future.  If  a  larger  surplus  of  agricultural 
products  could  be  assured  through  these  methods  dur- 
ing the  war,  as  was  done,  it  can  be  assured  for  a  long 
period  after  the  war.  The  production  of  one  bushel  of 
wheat  per  person  in  the  United  States  in  excess  of  the 
home  consumption  may  be  taken  as  the  general  measure 
of  what  may  be  done.  The  supplying  of  other  countries 
with  this  surplus  production  is  the  function  of  the  Amer- 
ican farm  in  foreign  trade.    It  is  for  the  new  agricul- 


32 


AMERICAN  FOREIGN  TRADE 


« ii 


I' 


ture  to  demonstrate  the  national  efficiency  in  this  field. 

The  American  farmer  is  assured  the  cooperation  of 
other  governments  in  providing  the  information  es- 
sential to  raising  crops.  He  no  longer  has  to  guess  what 
may  be  happening  to  the  harvest  in  some  other  part  of 
the  world,  although  it  will  have  an  important  influence 
on  his  own  crops.  The  International  Institute  of  Agri- 
culture, with  headquarters  at  Rome,  is  the  principal  one 
of  these  agencies  of  information. 

His  own  Government  provides  the  American  farmer 
with  something  more  than  information  about  the  crops. 
It  seeks  to  advise  him  regarding  the  markets  for  them 
and  to  assist  him  in  the  actual  marketing.  The  De- 
partment of  Agriculture  expaoded  its  domestic  field  by 
establishing  market  bureaus  abroad.  It  did  what  other 
departments  were  doing  for  marketing  manufactured 
products.  The  prospect  before  him  in  every  way  is  an 
encouraging  one. 


CHAPTER  III 

MACHINERY  AND  NATIONALIZED  EFFICIENCY 

Standardizing  European  methods  —  England's  progress  in  scientific 
eflfectiveness  —  American  individualized  efiiciency  —  Machinery's  place 
in  industrialism  —  Development  of  productive  power  —  Decrease  of 
handicraft  —  Monotony  of  machine  craft  —  Welfare  projects  —  Prohi- 
bition as  an  economic  element  —  England's  drink  problem  —  The  in- 
dustrial woman  of  the  world  —  Status  in  the  United  Kingdom  —  Posi- 
tion in  the  United  States  —  A  world  reserve  factor  in  production. 

ENGLAND'S  nationalized  industrial  organization" 
is  the  world  trade  factor  of  to-morrow.  Ger- 
many's monarchically  socialized  system  of  pro- 
duction and  distribution  is  the  experience  of  yesterday. 
America's  individualized  efficiency  is  the  realization  of 
yesterday  and  the  prospect  of  to-morrow.  France's  in- 
dustrial reorganization  is  the  hope  of  the  future.  What 
passed  with  the  passing  of  arms  and  what  remains,  what 
lasting  changes  in  economic  systems  may  come  out  of 
nationalized  activities,  can  be  determined  in  some  degree 
by  a  r^sum^  of  the  measures  that  were  adopted  for  na- 
tionalizing the  individual  factors  in  trade  and  industry, 
finance  and  transportation,  in  order  to  make  them  more 
efficient  war  machines. 

The  British  motive,  in  its  immediate  phase,  was  by 
increasing  productivity  to  overcome  the  devastation 
caused  by  war.  Science  was  brought  into  more  inti- 
mate touch  with  industry  by  the  closer  association  that 
was  established  between  the  laboratory  and  the  factory. 

33 


34 


AMERICAN  FOREIGN  TRADE 


Various  research  bodies,  such  as  the  General  Advisory 
Council,  with  its  standing  committees  on  engineering, 
metallurgy,  and  mining,  and  the  Chemical  Advisory 
Council  cooperated  with  the  Government  in  the  primary 
investigation  for  the  speeding  up  of  industry.  That 
their  work  assured  permanently  greater  productive  ca- 
pacity and  greater  economy  in  production  may  be  ac- 
cepted without  cataloguing  the  several  activities. 

The  field  of  accomplishment  is  too  broad  for  detailed 
survey.  In  rapid  review  it  may  be  said  that  musty 
factory  traditions  disappeared,  that  collective  eJBficiency 
supplanted  them,  that  the  use  of  automatic  machinery 
became  the  means  of  quantitative  production,  that  in- 
dustrial chemistry  made  striking  advances  as  evidenced 
by  an  increased  productiveness  of  fifteen  hundred  per 
cent,  for  sulphuric  acid,  and  that  all  processes  of  pro- 
duction were  improved  until  they  approximated  the 
scientific  effectiveness  which  is  the  ultimate  economic 
factor. 

In  its  widest  sense  it  may  be  said  that  British 
industrial  productiveness  was  standardized.  When 
American  enterprise,  in  the  form  of  an  American  match 
company,  in  one  of  its  militant  moods,  obtained  control 
of  its  English  competitor,  the  conservative  Britons 
gasped  at  the  swiftness  with  which  the  whole  plant  and 
its  expensive  equipment  were  scrapped  in  order  that 
modernized  machinery  might  be  installed.  The  hand 
had  given  way  to  the  machine  in  making  sulphur 
matches,  and  the  crude  and  heavy  appliances  in  use  by 
the  English  manufacturers  were  discarded  overnight 
for  standardized  match-making  machinery.  Such  an 
instance  would  now  be  no  cause  of  astonishment. 

The  standardization  which  was  so  marked  a  feature  of 


ATIONALIZErHEFFICIENCY 


m^ 


35 


the  military  methods,  nevertheless,  was  not  wholly  a 
consequence  of  the  war.  It  was  more  the  swift  develop- 
ment of  processes  upon  which  Europe  already  had  en- 
tered. Before  hostilities  opened,  European  countries 
had  begun  to  compete  with  the  United  States  in  the  use 
of  improved  machinery.  Germany,  quick  to  appropriate 
and  apply  the  inventions  of  others,  had  placed  her  basic 
industries  on  what  was  essentially  an  American  machin- 
ery foundation.  In  the  case  of  machine  tools  she  had 
paid  a  high  price  for  the  privilege  of  transferring  bodily 
an  American  machine-tool  industry,  something  in  which 
the  United  States  admittedlv  led  the  world.  France 
was  transforming  her  artistic  manufactures  into  greater 
productiveness  through  the  adoption  of  improved  me- 
chanical appliances  and  the  integration  of  factory 
plants.  England,  while  foremost  in  the  manufacture  of 
textile  and  other  forms  of  machinery  with  which  to  equip 
foreign  industrial  plants,  was  laggard  in  respect  to  some 
of  her  own  industries;  but  she  was  awakening. 

Standardization  in  the  United  States  had  been  an 
illustration  of  individualized  rather  than  of  nationalized 
eflBciency.  It  had  come  to  be  the  matter-of-course  factor 
in  all  phases  of  industrial  production.  Along  with  it 
was  the  efficiency  developed  in  the  single  factory  and 
the  efficiency  obtained  through  the  integration  of  groups 
of  factory  plants.  Efficiency  experts  and  efficiency  en- 
gineers, to  men  actually  engaged  in  industry,  had  become 
a  byword.  It  was  said  humorously  that  they  caused  no 
real  loss,  and  that  the  plant  which  employed  them  con- 
tinued to  produce  about  as  cheaply  as  before  they  took 
temporary  charge  of  it.  This  was  the  American  way  of 
confessing  reaction  from  exaggerated  expectations,  but 
there  was  no  disposition  to  deny  the  economies  effected 


36 


AMERICAN  FOREIGN  TRADE 


by  the  Taylor  System.  The  total  of  separate  factories 
in  which  these  economies  were  realized  made  an  appreci- 
able contribution  to  the  national  efficiency  in  production. 
Imperious  war  necessities  showed  deficiencies  in  the 
means  of  mobilizing  industry,  but  not  in  the  effectiveness 
of  their  production.  The  initiative  faculty,  which  is 
the  dominant  American  characteristic,  never  was 
brought  out  more  strongly.  Standardization  made 
further  advances.  Industrial  chemistry  literally  leaped 
forward,  so  that  toxic  war  gases,  as  an  illustration,  be- 
came an  instrument  of  peaceful  industry  as  soon  as  the 
war  was  ended. 

From  the  experience  of  England  and  the  other  Euro- 
pean belligerents,  and  from  the  example  of  the  United 
States,  the  conclusion  is  drawn  that  in  peace  activities 
machinery  occupies  a  more  advanced  place  in  produc- 
tion. The  Great  War  merely  pushed  forward  and  made 
more  general  industrial  processes  that  already  were  in 
operation.  It  gave  affirmative  evidence  that  the  char- 
acteristic feature  of  modern  industrialism  is  quantity 
production. 

Ferrero,  the  Italian  historian,  who  has  reveled  in 
comparing  the  industrialism  of  the  United  States  with 
the  civilization  of  Rome,  in  an  imaginative  sentence  de- 
scribes the  hand  of  man  as  a  living  and  mind-inspired 
machine.  Yet  the  hand,  as  the  instrument  of  industrial 
progress,  however  beautiful  its  manifestations  may  be, 
slackens  and  withers  before  the  multiple  mechanism 
which  the  human  brain  has  devised. 

The  hand  loom  of  India,  once  the  sustaining  force  of 
a  vast  population,  in  vain  seeks  rehabilitation  in  a 
nationalistic  revival  of  the  spirit  of  India.  The  loom 
is  gone,  and  with  it  other  cottage  employments.     The 


NATIONALIZED  EFFICIENCY 


37 


textile  industry  of  the  Hindus  nevertheless  becomes  an 
important  element  of  national  progress,  because  the  cot- 
ton mill,  in  replacing  the  hand  loom,  has  vastly  increased 
productiveness.  The  blacksmith^s  forge  and  the  simple 
foundry  the  world  over  are  absorbed  by  machine-driven 
iron  and  steel  mills. 

The  development  of  productive  power  in  modern  so- 
ciety through  the  use  of  machinery  is  a  fascinating  theme 
and  enters  into  the  realm  of  imaginative  economics. 
Nearly  a  century  ago  Henry  Clay,  in  advocating  the 
policy  of  protection,  gave  this  illustration  of  industrial 
progress  in  England : 

The  combined  force  of  machinery  employed  in  manufactur- 
ing in  the  United  States  equals  the  labor  of  how  many  men  T 
In  1820  in  Great  Britain  it  equaled  the  labor  of  one  million 
men.  The  aggregate  labor  of  individuals  employed  equals 
the  united  labor  of  two  million.  The  machine  labor  is  to 
manual  labor  as  one  hundred  to  two. 

Ralph  Waldo  Emerson,  a  third  of  a  century  after 
Henry  Clay,  said  that  the  power  of  machinery  in  the 
mills  of  Great  Britain  had  been  computed  to  be  equal 
to  six  hundred  million  men,  one  man  being  able,  by  the 
aid  of  steam,  to  do  the  work  which  required  two  hundred 
and  fifty  men  to  accomplish  fifty  years  earlier. 

Michael  Chevalier,  the  French  economist,  in  his 
"  Course  of  Political  Economy,"  in  1841,  made  these  es- 
timates : 

Manufactures  ^f  iron  increase  in  productive  power  in  five 
years  as  one  to  twenty-five  or  thirty;  flour,  since  Homer's 
day,  one  to  one  hundred  and  forty-four;  cotton  fabrics  in 
seventy  years  as  one  to  three  thousand  three  hundred  and 
twenty.  America,  in  transportation  of  goods,  as  one  to 
eleven  thousand  five  hundred. 


38 


AMERICAN  FOREIGN  TRADE 


ii 


This  is  a  striking  view  of  what  one  man  could  do  In 
the  Homeric  era,  and  what  one  man  could  accomplish 
towards  the  middle  of  the  nineteenth  century  with  all 
the  facilities  of  production  that  had  then  been  devised. 
The  development  of  productiveness  through  machinery 
and  standardization  in  the  last  seventy-five  years  makes 
Chevalier's  estimate  almost  a  medieval  one. 

It  is  in  the  United  States  that  in  the  past  the  use  of 
machinery  has  been  the  most  daring  and  most  far- 
reaching  in  its  influence  on  economic  development.  The 
census  of  hand-made  goods  taken  from  time  to  time  is 
the  living  evidence  of  this  development.  But  henceforth 
the  United  States  is  not  to  be  on  a  much  higher  plane 
than  other  countries  in  the  use  of  machinery.  It  will 
have  to  meet  conditions  that  they  have  to  meet. 

Meditative  and  moralizing  economists  voice  their  re- 
gret over  the  loss  to  the  artistic  side  of  civilization 
through  this  use  of  machinery,  but  the  endless  process 
goes  on  from  handicraft  to  machine  craft,  through  the 
temporary  distress  of  workers  caused  by  loss  of  employ- 
ment due  to  labor-saving  machinery,  until  there  is  the 
widened  employment  resulting  from  labor-making  ma- 
chinery. The  moralizing  economists  however  when 
they  deplore  the  depressing  influence  of  the  monotony 
of  machine  labor  on  the  human  organism,  have  a  case 
in  court  which  is  not  argued  away  by  the  mere  citation 
of  physical  comforts  through  increased  productiveness. 

There  are  subtractive  factors  which  lessen  the  value 
of  machine  production.  The  principal  one  is  the  reac- 
tion of  the  monotony  of  machine  labor  on  the  individual 
worker,  and  the  worker's  discontent  merging  into  group 
discontent  and  reacting  in  social  unrest.  The  war  has 
advanced  the  status  of  machinery  in  productiveness, 


NATIONALIZED  EFFICIENCY 


39 


and  as  an  element  of  the  efficiency  of  the  several  coun- 
tries also  has  accentuated  the  inevitable  condition  which 
goes  with  it.  Fortunately,  there  has  been  recognition  of 
the  need  of  meeting  these  conditions. 

On  the  part  of  corporations  and  individual  employers 
it  has  come  in  the  definite  measures  for  recreation,  for 
social  betterment,  and  for  disassociating  the  laborer 
from  the  monotony  of  his  daily  life.  On  the  part  of 
governments  it  has  germinated  new  plans  for  regulating 
the  conditions  of  labor  and  has  given  fresh  impetus  to 
half-considered  and  only  partly  effective  policies  of  the 
past  in  relation  to  bettering  the  conditions  of  actual  em- 
ployment. Insurance  for  the  sick  and  against  unem- 
ployment, old-age  pensions,  workmen's  compensation 
and  employers'  liability  laws,  and  a  whole  series  of 
welfare  laws  have  their  roots  in  the  desire  to  insure  the 
mind  as  well  as  the  body  of  the  laborer  against  distress. 
The  theory  is  that  if  his  mind  be  taken  off  the  monotony 
of  the  daily  grind,  both  mind  and  body  will  be  healthful. 

Great  Britain,  as  a  supplemental  means  of  national- 
ized efficiency,  has  taken  the  leadership  in  these 
measures,  especially  in  provisions  for  housing  the  work- 
ers and  for  safeguarding  their  health.  This  in  reality 
is  safeguarding  the  national  health.  If  the  measures 
become  as  effective  as  hoped,  they  will  place  England 
on  something  like  an  equality  with  the  United  States. 

There  are  interrogatory  signals,  however,  in  these 
measures  of  nationalized  efficiency.  One  is  a  beckon- 
ing inquiry  as  to  the  drink  habit.  No  one  who  has 
been  in  a  British  industrial  section  —  Birmingham  or 
Sheffield  on  a  Saturday  night,  or  the  Potteries  on  a 
Monday  morning  —  can  doubt  the  economic  effect  of 
the  drink  habit  on  the  -efficiency  of  a  manufacturing 


40 


AMERICAN  FOREIGN  TRADE 


country  such  as  Great  Britain.  The  war  enabled  some 
progress  in  temperance  to  be  made.  Strict  control  of 
the  liquor  traflBc  as  a  part  of  the  Defense  of  the  Realm 
Act  proved  more  effective  than  the  advocacy  of  ttimper- 
ance  legislation  on  moral  grounds  had  proved  in  peace- 
times. 

During  peace,  tradition,  vested  rights,  personal  lib- 
erty, all  made  the  extension  of  governmental  authority, 
in  lowering  the  consumption  of  alcoholic  liquors,  an 
exceedingly  difficult  problem  for  whatever  ministry  was 
courageous  enough  to  attempt  its  solution.  The  Liberal 
Ministry  of  Asquith  and  Lloyd  George  in  1908  and  1909 
found  how  great  the  difficulty  was  in  securing  the  enact- 
ment of  very  moderate  measures  to  reduce  the  number 
of  public  houses  and  limit  the  evil  of  women  drinking 
in  public  places. 

Nor  did  the  example  of  royalty  permeate,  as  in  many 
other  instances,  through  the  aristocracy  and  the  middle 
classes  down  to  the  working  classes.  King  George,  at 
the  outbreak  of  hostilities,  announced  the  abstinence 
of  the  royal  family  from  liquors ;  but  the  royal  example 
was  not  widely  followed.  What  was  accomplished  was 
through  direct  governmental  action.  This  was  partly 
based  on  the  necessity  of  conserving  the  materials  of 
beverages  for  war  uses.  There  was  an  actual  decrease 
in  consumption.^ 

The  United  Kingdom^s  annual  drink  bill,  or  the  sta- 
tistics of  the  number  of  gallons  of  beer  and  whisky  con- 

iThe  total  consumption  of  absolute  alcohol  in  1917  was  approxi- 
mately 45,000,000  gallons,  as  compared  with  73,000,000  in  1916,  81,- 
000,000  in  1915,  89,000,000  in  1914,  and  92,000,000  in  1913.  Of  this 
quantity  73.6  per  cent,  was  consumed  as  beer,  23.6  per  cent,  as  spirits, 
and  2.8  per  cent,  as  wine. —  Report  of  George  B.  Wilson,  Secretary  of 
The  United  Kingdom  Alliance. 


NATIONALIZED  EFFICIENCY 


41 


sumed  yearly  by  each  person,  was  far  from  telling  the 
full  story  of  the  efiPect  on  industrial  production.  In 
the  same  way  the  figures  showing  decreased  consump- 
tion during  and  following  the  war  may  not  tell  the  full 
tale  of  the  labor  effectiveness.  But  it  was  unquestion- 
ably a  more  sober  industrial  England  that  emerged 
from  the  war. 

The  United  Kingdom  must  take  note  of  what  its 
principal  industrial  and  commercial  competitor  does. 
The  United  States  did  not  go  on  a  prohibition  footing 
as  a  direct  consequence  of  the  war.  This  only  caused 
the  pace  to  be  accelerated.  The  advantage  taken  of 
war  necessities  by  the  prohibition  advocates  may  have 
been  unfair,  but  the  result  was  obtained  merely  a  few 
years  earlier  than  it  would  have  been  achieved  other- 
wise. What  the  war-prohibition  legislation  did  was  to 
accentuate  that  prohibition  had  acquired  its  irresistible 
force  because  of  the  recognition  of  its  economic  value. 

Moral  suasion  had  done  something  toward  diminish- 
ing drunkenness  and  the  industrial  ineflSciency  resulting 
therefrom.  Advocated  through  three  quarters  of  a  cen- 
tury, it  had  done  little  more  than  this.  When  the  vast 
waste  caused  by  alcohol  came  to  be  recognized,  when 
manufacturing  corporations  and  labor  organizations  be- 
gan to  advocate  prohibition  on  economic  grounds,  the 
movement  gained  rapid  headway.  It  may  be  that  those 
who  believed  in  the  prohibition  of  whisky  and  in  the 
indulgence  in  beer  and  light  wines  were  sound  in  their 
arguments,  but  these  arguments  proved  unconvincing 
to  the  majority  of  people  in  the  United  States.  Pro- 
hibition is  because  this  majority  realizes  its  economic 
value.  The  damp  climate  of  England  may  prove  a 
sufficient  argument  for  state  control  of  the  liquor  in- 


|l     V  -4 


1 


42 


AMERICAN  FOREIGN  TRADE 


dustry  in  the  United  Kingdom  rather  than  for  outright 
prohibition,  but  this,  too,  will  be  an  admitted  factor  in 
diminishing  the  drink  habit,  or  else  it  will  not  prevail 
as  a  policy.  It  must  justify  itself  as  a  means  of  in- 
creasing productiveness,  as  a  measure  of  nationalizing 
the  efficiency  of  the  British  working-man.^ 

Common  to  all  the  fighting  nations  was  the  woman 
worker.  Thu^  was  evolved  the  industrial  woman  of  the 
world.  Following  the  war,  the  question  arises,  Has 
there  developed  the  woman  artisan  as  a  new  factor  in 
production ;  and  if  so,  what  will  be  her  relation  to  the 
efficiency  in  the  productiveness  of  the  nation?  The 
thought  in  the  background  is  that  women  must  be  taken 
on  a  parallel  with  the  efficiency  of  men  workers. 

The  women  coal-heavers  of  Shanghai  or  Port  Said 
or  Jamaica,  who  fill  the  ship-bunkers,  do  not  think  that 
their  work  is  a  prerogative  of  the  male  sex.  The  women 
burden-bearers  of  Tibet,  who  carry  heavy  loads  up  the 
steep  mountain-passes,  do  not  look  on  that  work  as 
masculine.  The  Indian  women  of  Tehuantepec,  who 
take  to  themselves  the  major  part  of  the  physical  labor, 
have  no  conception  that  there  is  anything  unique  in  their 
occupation.  The  business  women  in  France  never  have 
allowed  it  to  be  assumed  that  they  were  usurping  the 
places  of  men.  No  more  have  the  business  women  and 
the  stenographers  and  typists  in  the  United  States  per- 
mitted such  an  assumption.  By  a  gradual  process  it 
had  come  to  be  taken  as  a  matter  of  course  that  dress- 
making, millinery,  and  school  teaching  were  not  the 
only  callings  open  to  women. 

iFor  a  discouraging  view  of  the  temperance  prospects  in  the  Unit«d 
Kingdom  see  "Reforming  the  Liquor  Trade  in  Great  Britain,"  by  a 
British  Liberal,  Atlantic  Monthly,  June,  1919. 


NATIONALIZED  EFFICIENCY 


43 


The  war  made  some  changes  and  caused  innovations 
startling  to  ossified  communities.  In  England  and  in 
the  Continental  countries,  after  hostilities  began^  there 
was  an  increase  in  the  number  of  women  employed  in 
field  labor,  but  there  was  nothing  novel  about  this  labor, 
especially  on  the  Continent.  When  women  tram-con- 
ductors and  mail-carriers  appeared  in  Nottingham, 
Leeds,  and  Bradford,  it  was  a  matter  of  passing  wonder, 
for  those  were  the  early  days  of  the  war.  But  women 
conductors  had  been  employed  for  years  on  the  tramways 
of  Santiago  and  Valparaiso  in  Chile,  and  many  women 
were  already  licensed  taxicab-drivers  in  Paris.  In  the 
United  States  the  appearance  of  women  as  conductors 
on  the  street  railways  merely  caused  the  quick  addition 
of  a  new  word,  conductorette,  to  the  popular  vocabulary. 

The  permanence,  or  temporariness,  of  these  occupa- 
tions has  little  economic  significance.  The  real  ques- 
tion relates  to  the  evolution  of  the  industrial  woman  of 
the  world  through  employment  in  the  munitions  fac- 
tories and  in  kindred  industries.  Within  a  few  months 
after  the  war  began  the  work  in  the  munitions  factories 
of  England  had  been  so  standardized  that  it  did  not 
differ  greatly  from  work  in  the  textile  factories,  in  which 
women  always  had  been  employed.  In  1918,  the  high 
pressure  period,  there  were  1,250,000  women  replacing 
men  in  the  industrial  organization  in  the  United  King- 
dom, and  of  these  800,000  were  munitions  workers. 

In  the  early  stage  of  the  war  political  economy  took 
rather  doleful  note  of  the  psychological  effect  of  this 
sudden  increase  of  women  in  employment,  and  also  took 
notice  of  the  effect  on  the  national  spending  habit.  The 
cockney  woman,  whose  quick  wealth  of  wages  went  for 
new  hats  and  dresses  and  all  sorts  of  feminine  finery, 


44 


AMERICAN  FOREIGN  TRADE 


instead  of  going  into  the  postal  savings-bank,  caused 
grave  apprehensions.  Political  economy  could  not  see 
in  these  extravagances  the  starved  soul  struggling  to 
the  light.  But  gradually  this  situation  adjusted  itself. 
The  woman  munition-worker  became  a  factor  in  con- 
sumption and  production  with  living  expenses  just  like 
the  man  worker. 

In  the  third  year  of  the  war  a  summary  of  an  authori- 
tative character  was  made  regarding  the  industrial  posi- 
tion of  women  in  the  United  Kingdom.  It  was  noted 
that  the  process  of  relaxing  trade-union  restrictions 
which  interfered  with  the  employment  of  women  had 
gone  on  at  an  accelerated  rate;  that  they  had  entered 
innumerable  occupations  theretofore  closed  to  them,  for 
many  of  which  they  were  supposed  to  be  unfitted,  but 
in  which  they  were  making  good.  It  was  also  noted 
that  in  industrial  occupations  where  physical  strength 
was  required  they  were  at  a  disadvantage,  and  that  in 
the  munitions  trades  operations  had  been  subdivided, 
and  that  a  woman  did  only  one,  or  at  the  most  two  or 
three  parts  of  a  process,  instead  of  performing  the  whole 
complex  operation.  In  this  subdivMed  work  they  had 
attained  great  efficiency,  and  had  proved  that  they  had 
inherent  ability  to  handle  skillfully  tools  and  ma- 
chinery.i 

In  the  United  States  no  census  of  employed  women 
was  made  during  the  war.  Following  the  armistice, 
it  was  estimated  by  the  United  States  Employment 
Bureau  that  there  were  12,500,000  women  at  work  in 
industries;  that  is,  females  in  gainful  occupations  ten 

i"EflFect  of  the  War  upon  the  Employment  of  Women  in  Eng- 
land," by  Mary  Conyngton,  Monthly  Review  of  the  U.  S.  Bureau  of 
Labor  Statistics,  April,  1918. 


NATIONALIZED  EFFICIENCY 


45 


years  of  age  and  over,  without  regard  to  those  who  en- 
tered industry  because  of  temporary  war  conditions. 
Scattered  evidence  was  said  to  indicate  that  the  number 
was  much  smaller  than  was  generally  supposed,  and 
that  large  numbers  of  women  employed  in  the  war  in- 
dustries had  been  transferred  from  other  occupations. 
It  was  assumed  that  after  the  war  most  of  these  women 
would  naturally  go  back  to  their  old  trades.  The  same 
authority  quoted  an  organization  representing  employ- 
ers to  the  effect  that  in  the  last  twenty-five  years  the 
employment  of  women  in  manufacturing  had  increased 
more  rapidly  than  that  of  men,  and  the  opinion  was  ex- 
pressed that  the  expansion  of  their  activities  at  this 
time  may  be  regarded  not  as  a  radical  innovation,  but 
rather  as  an  acceleration  of  a  normal  development. 

These  observations  would  seem  to  put  the  industrial 
woman  of  the  United  States  on  a  somewhat  different 
footing  from  her  sister  in  Europe,  where  the  war  needs 
did  develop  virtually  a  new  class  of  industrial  women 
workers  who  had  been  without  previous  experience  in 
manufactures. 

The  British  Labor  Mission  which  visited  the  United 
States  after  the  war  gave  high  testimony  to  the  degree 
of  efficiency  of  women  industrial  workers.  The  com- 
parative merits  of  men  and  women  engaged  in  such  lines 
as  tool-making  and  delicate  munition  works  calling  for 
the  utmost  precision  was  summed  up  in  this  way:  in 
fields  where  an  all-around  knowledge  was  required,  and 
capacity  for  grasping  many  aspects  of  a  problem,  men 
still  held  preeminence ;  but  in  many  specialties  requiring 
a  high  degree  of  efficiency  in  a  restricted  field  women 
had  shown  themselves  better  able  to  withstand  the 
monotony  than  men. 


mi! 


II       IM) 


46 


AMERICAN  FOREIGN  TRADE 


This  testimony  is  especially  important  in  view  of  the 
effect  of  monotony  through  the  use  of  machinery  on 
workers  generally.     It  seems  to  assure  that  while  the 
woman  mechanic  numerically  may  not  immediately  be- 
come an  important  factor  in  industrial  production,  she 
is  a  reserve  industrial  resource,  and  in  the  employments 
where  adaptability  to  machinery  is  necessary  she  is 
likely  to  measure  up  to  the  requirements.     It  is  prob- 
able that  her  increased  participation  iu  mechanical  labor 
will  give  an  impetus  to  welfare  legislation,  and  in  the 
sense  that  this  influences  efficiency  in  production,  there 
will  be  increased  productiveness.    Yet,  taking  the  in- 
dustrial nations  of  the  world  as  a  whole,  it  has  not  been 
demonstrated  that  the  woman  mechanic  will  displace 
the  woman  of  the  home,  or  that  marriage  and  mother- 
hood will  cease  to  be  her  function  in  the  social  organiza- 
tion.    The  industrial  woman  of  the  world,  in  the  final 
determination,  may  be  regarded  as  the  great  reserve 
factor  in  productiveness  to  be  drawn  on  as  the  needs 
of  industry  may  demand.     Her  employment  means  no 
lessening  of  the  nationalized  efficiency  in  any  country. 


CHAPTER  IV 


RAW   MATERIALS 


Iron  the  blood  of  industrial  nations  —  Ore  resources  of  the  world 

Distribution  in  the  United  States  — Coal  reserves  —  Sources  of  man- 
ganese —  Copper  and   other   industrial   metals  —  Petroleum   as   fuel 

Where  the  oil-fields  lie  —  Water-power  as  motive  force  —  Raw  materials 
of  textiles  — Great  Britain's  basis  of  iron  and  steel  industries  —  Ge- 
ographical advantages  — Points  in  competition  with  the  United  States 
—  What  Lorraine  iron  and  Sarre  coal  mean  to  France. 

RON,"  declared  Richard  Cobden,  "is  the  blood  of  an 
industrial  nation."  How  this  blood  shall  circulate 
is  one  of  the  forceful  questions  of  the  new  indus- 
trial era.  Food  for  industry  is  as  essential  as  food  for 
peoples.  Its  primary  possession  is  the  key  to  the  future 
status  of  the  several  countries  in  their  world  trade. 

The  world  has  more  than  one  hundred  and  twenty- 
three  billion  tons  of  potential  iron  ore  resources  capable 
of  conversion  into  more  than  fifty  billion  tons  of  iron. 
It  has  approximately  twenty-two  and  a  half  billion  tons 
in  existing  deposits  more  or  less  developed,  the  equiva- 
lent of  approximately  ten  billion  tons  of  raw  iron.* 

The  resounding  statement  that  the  United  States  has 
ore  in  reserve  to  last  a  thousand  years  is  sufficiently 
satisfying,  but  is  somewhat  vague.  More  definite  is  the 
statement  that  it  possesses  nearly  one  fifth  of  these  de- 
veloped ore  deposits,  or  in  excess  of  four  billion  two 

i"Iron  Ore  Resources  of  the  World."  An  inquiry  made  upon  the 
initiative  of  the  executive  committee  of  the  Xlth  International  Geo- 
logical Congress,  Stockholm,  1910. 

47 


48 


AMERICAN  FOREIGN  TRADE 


hundred  and  fifty  million  tons,  whicli  is  capable  of 
conversion  into  two  billion  three  hundred  million  tons 
of  iron.  The  German  Empire,  as  it  was  constituted 
at  the  beginning  of  the  Great  War,  with  Luxemburg  in- 
cluded, had  a  fraction  less  than  three  billion  nine  hun- 
dred million  ore  tons,  equivalent  to  one  billion  three 
hundred  sixty  million  tons  of  raw  iron.  France,  as 
then  made  up  geographically,  had  three  billion  three 
hundred  million  tons  of  ore,  equal  to  one  billion  one 
hundred  and  forty  million  tons  of  iron.  The  United 
Kingdom  has  one  billion  three  hundred  million  tons  of 
ore,  capable  of  conversion  into  four  hundred  and  fifty- 
five  million  tons  of  iron.  Spain  has  seven  hundred  and 
eleven  million  tons  of  ore,  equivalent  to  three  hundred 
and  fifty  million  tons  of  iron. 

In  the  New  World,  Cuba  and  Newfoundland  are  minor 
reserves.  The  ore-beds  of  Brazil  and  Chile  in  South 
America,  while  enormous,  furnish  only  conjectures  of 
their  possibilities.    China  is  the  reserve  for  Asia. 

The  Lake  Superior  region  in  years  of  average  activity 
is  drawn  on  for  from  eighty-one  to  eighty-five  per  cent, 
of  the  iron  ore  utilized  in  the  domestic  industnes  of 
the  United  States.     In  dull  years  the  production  drops 
below  forty  million  tons,  and  in  busy  years  as  easily 
mounts  to  sixty-five  million  tons.     The  Southeastern 
States,  from  Maine  to  Alabama,  provide  from  ten  to 
fourteen  per  cent,  of  the  normal  production,  and  the 
Northeastern   States  a  fraction  under  four  per  cent. 
The  Rocky  Mountain  region  and  the  Pacific  slo])e  pro- 
vide about  one  per  cent.     Thus  it  may  be  said  that  the 
iron  ore  resources,  althoujjh  unequally  distributed,  exist 
throughout  the  whole  country. 

Coal  reserves  throughout  the  entire  globe  amount  to 


RAW  MATERIALS 


49 


considerably  more  than  seven  thousand  billion  tons.^ 
The  total  world  production  annually  during  peace  is 
a  billion  and  a  quarter  tons. 

The  United  States  produces  approximately  five  hun- 
dred million  tons.  Its  coal  deposits  may  be  ex- 
hausted in  two  hundred  years,  as  alarmist  scientists 
sometimes  assert,  or  they  may  be  conserved  to  last 
^\e  hundred  years;  but  so  far  as  the  vision  of  man 
extends,  their  prospective  life  is  sufficient  to  convert  iron 
ore  into  iron  and  steel  products  until  other  fuel  is  found 
to  replace  them.  The  industrial  area  between  Pitts- 
burgh and  Cleveland  is  the  story  of  the  meeting  of  the 
iron  ore  of  the  Great  Lakes  with  the  coal  of  Ohio,  West 
Virginia,  and  Pennsylvania.  Birmingham's  smoky  at- 
mosphere tells  where  the  ore  and  coal  lie  in  twin  beds. 
Colorado's  iron  and  steel  industry  is  the  chapter  which 
describes  the  advantageous  assemblage  of  the  ore  and 
coal  of  the  Rocky  Mountain  region.  The  vast  variety 
of  iron  and  steel  products,  which  are  the  hall-mark  of 
industrial  progress  in  this  era  of  international  com- 
merce, therefore  find  the  United  States  fully  supplied 
with  the  two  principal  primary  elements  that  enter  into 
their  production. 

There  are  also  supplemental  sources  of  supply. 
United  States  capitalists  control  the  Cuban  ore-fields, 
and  draw  on  them  as  needed.  Newfoundland's  iron 
ore  deposits  likewise  are  available.  Chile's  iron-beds 
have  been  opened  by  American  capital,  .and  are  now  sup- 
plying blast-furnaces  in  Pennsylvania  and  Maryland. 
When  the  time  comes  that  Brazil's  ore  reserves  are 
needed  they  are  as  accessible  to  the  United  States  as 

1  Toronto  Greological  Congress,  1912.     The  exact  figures  in  the  mono- 
graph on  this  subject  were  7,397,533,000,000  tons. 


i#i 


'H 


50 


AMERICAN  FOREIGN  TRADE 


RAW  MATERIALS 


SI 


\ 


to  Europe.  Such  small  quantities  of  Swedish  ore  and 
of  Spanish  ore  as  are  wanted  are  easily  obtained,  but 
the  United  States  could  draw  exclusively  on  the  ore 
deposits  of  the  New  World,  and  its  iron  and  steel  in- 
dustry be  absolutely  independent  of  Europe. 

This  is  shown  in  the  sources  of  manganese.  This  es- 
sential element  is  to  be  obtained  from  Brazil  in  quanti- 
ties sufficient  to  render  that  from  the  Caucasus  and  from 
India  secondary,  as  has  been  demonstrated  during  the 
war.  The  Caucasian  region  of  Russia  is  good  for  an 
annual  production  ranging  from  1,000,000  to  1,500,000 
tons.  India  may  reach  1,000,000  tons  under  the  in- 
centive of  extraordinary  demand,  but  an  average  pro- 
duction of  600,000  tons  is  all  that  may  be  looked  for  in 
normal  circumstances.  The  Brazilian  production  in- 
creased from  150,000  tons  in  1913  to  400,000  tons  in 
1917.     It  is  capable  of  much  greater  increase. 

In  supplying  iron  and  steel  products  in  world  trade, 
the  United  States,  therefore,  is  not  confronted  with  peril 
from  lack  of  raw  materials.  The  question  is,  instead, 
one  that  relates  to  the  conditions  of  competition  with 
Europe  in  the  home  market  and  in  neutral  territory. 
Some  shifting  of  the  domestic  industries  from  one  local- 
ity to  another  may  occur,  due  to  the  relative  proportion 
of  fuel  and  freight  charges.  But  America's  share  in  the 
iron  and  steel  trade  of  the  world  as  a  whole  will  be 
regulated  principally  by  conditions  in  the  Pittsl)urgh 
district,  with  freight  charges  to  the  seaboard  having  a 
marked  influence  in  determining  prices  at  which  the 
products  may  be  sold  in  foreign  countries. 

In  the  wide  range  of  the  newer  industries  that  are 
controlling  factors  in  world  trade,  copper,  after  iron 
ore,  enters  more  largely  into  manufactured  articles  than 


does  any  other  raw  material.  The  normal  world  pro- 
duction is  in  excess  of  a  million  long  tons,  and  of  this 
quantity  the  United  States  supplies  more  than  one  half. 
In  1913,  before  the  war,  the  total  world  production  was 
two  billion  two  hundred  million  pounds,  and  of  this 
amount  the  United  States  produced  one  billion  two  hun- 
dred and  twenty-five  million  pounds.  The  production 
is  more  than  enough  for  use  in  the  electrical  and  other 
industries,  and  leaves  a  surplus  for  export;  but  there 
is  an  economic  convenience  in  exporting  part  of  the 
domestic  product  and  in  importing  copper  from  other 
countries. 

Copper  ore  reserves  available  to  the  United  States  are 
found  in  Mexico,  in  Canada,  and  in  South  America. 
The  Mexican  deposits,  for  the  most  part,  lie  close  to 
the  boundary-line,  as  in  the  State  of  Sonora,  and  may 
be  regarded  by  the  United  States  as  domestic  resources. 
Canada  may  be  looked  on  in  the  same  way  as  Mexico, 
since  the  mines  of  British  Columbia  are  contiguous. 
The  South  American  deposits  are  principally  in  Peru 
and  Chile.  The  majority  of  the  mines  there  are  owned 
by  North  American  capital.  The  bulk  of  the  output 
finds  a  convenient  transportation  route  through  the 
Panama  Canal. 

The  zinc  resources  of  the  United  States  are  abundant 
enough  for  all  manufacturing  purposes.  From  1911  to 
1915  the  production  increased  from  272,000  to  458,000 
short  tons  yearly.  An  annual  output  of  half  a  million 
tons  is  easily  obtained,  provided  the  demand  requires  it. 
Lead  exceeds  500,000  tons  of  annual  production.  The 
output  rose  from  392,000  tons  in  1911  to  507,000  tons  in 
1915.     The  reserve  resources  of  lead  are  extensive. 

Tin  is  one  of  the  minerals  for  which  the  United  States 


52 


AMEKICAN  FOREIGN  TRADE 


RAW  MATERIALS 


53 


. '■  -m 


must  look  to  other  countries.  When  American  capital- 
ists erected  large  smelters  on  the  New  Jersey  coast  they 
forgot  about  the  tin-plate  industry  in  England.  They 
had  looked  to  the  Malay  Straits  Settlement  for  their 
raw  material,  but  the  British  manufacturers  persuaded 
the  Straits  Government  to  put  an  export  tax  on  tin 
exported  to  countries  not  in  the  British  Empire.  Con- 
sequently, the  New  Jersey  smelters  remained  idle  until 
the  Great  War.  Then  an  arrangement  was  made  by 
which  the  raw  material  was  obtained  from  Bolivia,  and 
the  smelters  were  put  into  operation.  The  Bolivian 
Government  imposes  an  export  tax,  but  it  is  not  dis- 
criminatory. Bolivia  produces  one  fifth  of  the  world's 
tin. 

The  future  of  petroleum  as  fuel  is  not  fully  deter- 
mined, but  the  tendency  is  to  increase  its  use  for  in- 
dustrial  purposes.     The   United   States   to-day  is   the 
greatest  producer  of  oil  in  the  world,  having  far  out- 
stripped Russia.     Mineral  oils  furnish  one  of  the  prin- 
cipal export  commodities.     Should  there  be  a  strong 
demand  for  the  consumption  of  larger  quantities  of  fuel 
oil  in  the  United  States,  the  exports,  through  economic 
causes,  would  be  reduced  automatically.     The  setting 
aside  of  extensive  oil  areas  by  the  United  States  Gov- 
ernment as  naval  reserves,  and  the  tendency  of  naval 
authorities  to  exaggerate  the  claims  of  the  Navy  of  the 
future,  by  establishing  a  government  monopoly,  though 
an  industrial  drawback  is  not  likely  seriously  to  inter- 
fere with  production.     Oil  is  a  raw  resource  of  great 
value  to  industries,  and  while  the  needs  of  the  Navy 
will  not  be  neglected,  there  is  no  reason  to  suppose  that 
public  policy  will  permit  large  productive  areas  to  be 
reserved  indefinitely. 


The  petroleum  production  of  the  United  States,  since 
1911,  has  ranged  from  220,500,000  barrels  upward.  Be- 
fore the  entrance  of  the  United  States  into  the  Great 
War  the  Navy  Department  had  made  an  estimate  of 
its  needs,  based  on  the  change  from  coal-burning  to  oil- 
burning  boilers,  and  the  impracticability  of  changing 
back  from  oil  to  coal.  The  experience  of  war  demon- 
strated the  utility  of  oil  as  power  and  speed  for  the 
battle-cruisers,  and  also  afforded  some  criterion  of  what 
are  likely  to  be  the  real  needs  in  the  future.  The  posi- 
tion taken  by  the  Navy  Department  has  been  that  the 
oil  resources  on  the  public  lands  should  be  kept  as  a 
reserve,  and  the  Government,  in  furtherance  of  this  view, 
from  time  to  time  has  set  aside  naval  reserves  in  Cali- 
fornia, Utah,  Colorado,  and  Wyoming.  It  is  still  a  de- 
batable question  how  much  petroleum  should  be  kept  out 
of  commercial  and  industrial  use  for  naval  reserve  pur- 
poses; but  with  the  power  of  the  Government  to  com- 
mandeer oil  supplies  during  war,  this  matter  does  not 
seem  incapable  of  solution. 

The  real  problem  was  thought  to  be  whether  the  pe- 
troleum supply  is  in  danger  not  of  exhaustion,  but  of 
absorption  in  one  form  of  industry,  namely,  gasolene  for 
automobiles.  Improved  methods  of  manufacture;  new 
discoveries,  such  as  the  Rittman  Process ;  the  possibility 
of  combining  benzol  and  alcohol ;  the  prospect  of  using 
industrial  alcohol  in  the  working  of  internal-combus- 
tion engines,  and  the  abundant  sources  from  which  this 
product  may  be  obtained  — all  afford  relief  from  the 
fear  that  the  United  States  may  fall  back  in  its  manu- 
facturing development  through  lack  of  petroleum  for 
fuel.  Moreover,  it  has  the  Mexican  oil-fields  at  Tampico 
to  depend  on  as  auxiliary  sources  of  supply. 


, ,( 


54 


AMERICAN  FOREIGN  TRADE 


RAW  MATERIALS 


55 


The  greatest  means  of  relief,  however,  was  a  war  de- 
velopment. It  was  the  advance  made  in  the  use  of  in- 
dustrial alcohol  as  fuel  by  providing  alcogas,  a  substi- 
tute, for  gasolene.  The  full  value  of  this  substitute  may 
not  be  realized  for  many  years,  but  there  is  no  question 
that  it  possesses  a  real  fuel  value. 

Reduced  to  statistics,  which  are  estimates  and  not 
scientific  propositions,  the  petroleum  resources  of  the 
world  are  approximately  one  billion  six  hundred  million 
metric  tons,  with  possible  reserves  of  three  billion  one 
hundred  million  metric  tons.  This  brings  the  total  pe- 
troleum deposits  up  to  five  billion  seven  hundred  million 
metric  tons.  The  United  States  has  a  probable  posses- 
sion of  nine  hundred  and  thirty-seven  million  tons,  of 
which  probably  six  hundred  and  twenty-six  million  tons 
are  available  commercially. 

The  possession  of  so  large  a  proportion  of  the  pe- 
troleum deposits  does  not,  however,  assure  the  United 
States  predominance  in  this  industry.  During  the  war 
an  official  publication  sounded  a  note  of  mild  alarm 
over  the  possibility  that  the  control  of  the  world's  supply 
would  pass  into  foreign  hands.  It  was,  therefore,  urged 
that  the  United  States  should  take  measures  to  insure 
itself  full  supplies.^ 

Water-power  transformed  into  electrical  energy 
is  another  raw  material,  as  much  a  raw  fuel  as 
coal,  which  the  United  States  possesses  in  abundance. 
Modem  industrial  authorities  are  just  beginning  to  es- 
timate economic  efficiency  in  terms  of  boilers  and  en- 
gines,—  that  is  of  horse-power, —  and  that  which  may 
be   obtained   from    the   utilization   of   water-power   is 

1 "  Petroleum  Resources  of  the  United  States,"  by  M.  I,.  Requa,  con- 
sulting engineer  of  the  Bureau  of  Mines,  Washington,  1916. 


placed  on  the  same  plane  as  that  of  the  boilers  and 
engines  which  are  driven  by  steam  from  coal.  When 
the  German  Army  seized  Belgium,  and  followed  this 
seizure  with  the  occupation  of  a  large  region  of  France, 
the  military  authorities  acted  on  the  knowledge  that 
the  index  of  the  industrial  activity  of  a  country  is  found 
in  the  amount  of  hors^-power  employed  as  motive  power 
and  the  number  of  boilers  installed  in  manufacturing 
plants.  A  census  was  taken  of  the  number  of  boilers 
and  the  horse-power  in  the  area  occupied  by  the  German 
troops.  Very  little  of  this  was  developed  from  water- 
power,  but  the  industrial  engineers  of  the  Allies,  taking 
their  cue,  began  to  estimate  how  the  water-power  to  be 
obtained  from  the  Alps  and  the  Apennines  could  make 
up  for  the  lack  of  fuel  from  which  Italy  suffered.  The 
development  of  this  water-power  proved  a  useful  service 
in  Italy's  munition  manufactures. 

A  British  economist,  in  a  mid-w^ar  discussion  of  Great 
Britain's  presumed  industrial  supremacy  after  the  war, 
laid  stress  upon  the  horse-power  of  the  British  Empire, 
with  special  reference  to  water-power.^ 

Canada  is  a  principal  source  of  this  power.  The  es- 
timate is  of  approximately  eighteen  million  water  horse- 
power available  in  the  dominion.  According  to  the 
dominion  Census  Bureau  there  was  in  1917  a  total  de- 
veloped water-power  capacity  of  two  million  three  hun- 
dred and  five  thousand  horse-power. 

The  United  States,  on  the  authority  of  the  Geological 
Survey,  has  available  sixty-one  million  six  hundred  and 
seventy-eight  thousand  water  horse-power.  In  the  con- 
gressional debates  concerning  the  legislation  for  con- 

1"  Britain's    Coming   Industrial    Supremacy,"   by   J.    Ellis    Barker, 
Nineteenth  Century,  October,  1916. 


56 


AMERICAN  FOREIGN  TRADE 


serving  and  utilizing  this  power,  it  was  declared  that  all 
but  five  million  three  hundred  thousand  horse-power 
#as  running  to  waste.  The  truth  is  that  the  United 
States  has  a  vast  reserve  of  raw  material  in  this 
potential  hydroelectric  energy,  and  that  the  water- 
power  may  fairly  be  classed  with  petroleum  and  coal 
as  one  of  the  primary  elements  of  production.  It 
has  the  additional  advantage  that  it  cannot  be  ex- 
ported except  in  the  form  of  manufactured  commodities 
for  the  production  of  which  it  has  supplied  the  driving 

force. 

Raw  materials  of  textile  industries  are  not  the  natural 
monopoly  of  any  nation.     The  United  States,  with  its 
preponderant  cotton  production,  comes  closer  to  a  textile 
monopoly  than  any  other  country.     In  the  matter  of 
wool  it  can  claim  no  such  preponderance.     Out  of  an 
average  world  production  of  two  billion  eight  hundred 
million  pounds  of  wool  annually,  the  United  States 
cannot  account  for  more  than  three  hundred  and  fifty 
million  pounds.     Moreover,  there  is  the  need  of  the 
coarser  grade  wools  grown  in  other  countries  for  mix- 
ture.    However,  the  whole  world  is  open  to  the  United 
States  as  much  as  to   other  manufacturing  nations. 
The  woolen   industry  is  not  one  of  rapid  or  of  ex- 
tensive development,   and  it  is  never  likely  to  be  a 
very  prominent  factor  in  the  foreign  trade ;  but  in  the 
fabrics  which  enter  into  the  export  trade  of  the  world 
the  United  States  at  least  has  a  basic  supply  of  raw  wool 
of  its  own  production.     During  the  war  large  quantities 
of  South-American  wool  were  absorbed  for  manufactur- 
ing purposes,  and  this  absorption  is  not  likely  to  cease. 
Great   Britain's  raw   material   resources  are   to  be 
viewed  not  only  as  those  of  the  United  Kingdom,  but  as 


RAW  MATERIALS 


^7 


those  of  the  British  Empire.  Nevertheless,  geography 
interposes  some  obstacles  which  political  ties  cannot 
overcome.  In  the  great  basic  raw  resources  of  iron  and 
coal  the  United  Kingdom  is  to  be  analyzed  with  refer- 
ence to  European  geography,  since  the  overseas  colonies 
are  deficient  in  these  primary  products,  and  if  they  were 
not,  the  transportation  factor  is  in  the  way. 

The  United  Kingdom,  according  to  the  authority 
previously  quoted,  has  one  billion  three  hundred  million 
tons  of  potential  ore,  equal  to  four  hundred  and  fifty- 
five  millions  tons  of  raw  iron.  Approximately  three 
hundred  million  tons  of  coal  are  mined  annually.  The 
geographical  relation  of  the  iron  ore  and  coal  deposits 
of  the  United  Kingdom  is  the  key  to  her  iron  and  steel 
industries,  to  the  shipbuilding  at  Newcastle,  Glasgow, 
and  Liverpool,  to  Birmingham's  basic  products,  and  to 
Sheffield's  highly  specialized  articles.  The  soft  ore  of 
Sweden  and  the  ore  of  Spain  are  easily  accessible,  and 
supplement  the  domestic  supply.  The  manganese  of 
India  and  of  Brazil  is  as  available  for  the  United  King- 
dom as  for  the  United  States.  There  is  also  the  tin 
of  Cornwall,  supplemented,  colonially,  by  that  of  Aus- 
tralia and  the  Malay  Straits. 

The  United  Kingdom  does  not  require  to  import  a 
single  ton  of  coal  for  her  iron  and  steel  and  collateral 
industries.  With  the  ores  accessible,  she  has  no  fears 
of  a  lack  of  raw  materials.  So  far  as  concerns  the 
manufacture  of  these  raw  materials  into  finished  and 
semi-finished  articles,  she  is  in  a  position  at  least  as 
favorable  as  the  United  States. 

Andrew  Carnegie,  in  his  testimony  before  the  Ways 
and  Means  Committee  when  the  tariff  legislation  of 
1909  was  being  formulated,  declared  that  Great  Britain 


1. 


58 


AMERICAN  FOREIGN  TRADE 


was  badly  situated  in  regard  to  iron-ore  supplies,  and 
that  the  country  had  reached  the  apex  of  her  manu- 
facturing powers.  According  to  him,  Great  Britain's 
iron-ore  supplies  were  rapidly  vanishing. 

This  view  was  commented  on  at  the  time  in  England, 
and  against  it  was  cited  a  report  of  the  Swedish  Geo- 
logical Survey,  which  said  that  there  were  not  fewer 
than  a  thousand  million  tons  of  iron  ore  left  in  the  ex- 
isting workable  ore-fields.  England  was  then  import- 
ing from  one  third  to  one  half  as  much  ore  as  she  mined. 
Spain  was  the  chief  source  of  supply,  and  after  that 
Sweden. 

Mr.  Carnegie's  prophecy  was  in  substance  that  in  six 
years  England's  iron-  and  steel-making  resources  would 
be  as  much  impaired  as  would  be  those  of  the  United 
States  in  a  hundred  years.  The  period  fixed  by  Mr. 
Carnegie  for  this  calamity  ended  in  the  midst  of  the 
Great  War.  England  was  then  drawing  tremendously 
on  her  iron-ore  and  coal  resources  for  munitions-mak- 
ing, but  the  ore  reserves  gave  no  signs  of  impairment. 

A  sanguine  view  of  England's  position,  due  to  the 
possession  of  the  raw  materials  which  are  the  basis  of 
iron  and  steel  industries,  was  *taken  by  a  high-class 
technical  journal  in  an  article  published  at  the  threshold 
of  1918.1 

A  condensation  of  this  article  was  to  the  effect  that 
the  future  supremacy  in  iron  and  steel  and  engine(»ring 
export  trade,  which  is  the  world's  most  important  group 
of  manufactures,  is  between  the  United  States  and  the 
United  Kingdom.  In  thirty  years  the  world's  per  cai)ita 
consumption  of  the  group  increased  150  per  cent.  The 
United  States,  Germany,  and  the  United  Kingdom  sup- 

1  Engineeringf  London,  December  28,  1917. 


RAW  MATERIALS 


59 


plied  eighty-five  per  cent,  of  the  world's  iron  and  steel 
and  engineering  products.  In  the  United  States  the 
iron  ore  is  one  thousand  miles  from  the  coal-mines,  and 
the  iron  and  steel  works  are  from  four  hundred  to  five 
hundred  miles  from  seaboard.  British  ore  and  coal 
areas  are  compact.  Machinery  on  large  scale  produc- 
tion is  a  feature  of  the  industry  in  the  United  States. 
The  United  Kingdom's  great  advantage  is  her  coal  and 
iron  supplies,  her  manufacturing  plants  and  shipping 
ports  side  by  side,  and  her  unique  transport  facilities. 

It  is  unquestionable  that  England  can  lay  down 
her  finished  products  for  export  at  seaboard  with  smaller 
transportation  charges  than  can  the  United  States. 
Other  factors  enter  into  competitive  sales  in  the  world's 
markets,  but  in  the  means  of  assembling  the  raw  ma- 
terials of  the  iron  and  steel  industry  and  of  placing  the 
manufactured  commodities  afioat,  it  is  touch  and  go  be- 
tween the  United  Kingdom  and  the  United  States. 

England  has  no  copper,  and  but  little  can  be  supplied 
from  her  colonies.  The  world's  supply,  however,  is  as 
open  to  her  as  it  was  to  Germany,  and  she  is  in  a  posi- 
tion to  develop  her  electrical  industries,  although  in 
the  past  she  has  not  done  this  to  the  degree  of  becoming 
a  rival  of  Germany  and  the  United  States  in  copper 
products. 

In  textiles  the  United  Kingdom,  as  has  been  explained 
in  a  previous  chapter,  is  not  in  a  position  to  free  herself 
from  dependence  on  the  raw  cotton  of  the  United  States, 
notwithstanding  India  and  Egypt.  But  the  lack  of  this 
essential  raw  material  is  partly  compensated  by  the 
development  from  generation  to  generation  of  skilled  tex- 
tile workers. 

In  the  woolen  industry  England  has  both  raw  ma- 


60 


AMERICAN  FOREIGN  TRADE 


terials  and  inherited  industrial  capacity.  Her  own 
sheep  furnish  a  not  inconsiderable  supply  of  raw  wool, 
although  the  common  impression  is  that  England  grows 
only  mutton  sheep.  With  Australia,  and  particularly 
New  South  Wales,  India,  and  South  Africa  supplement- 
ing the  domestic  supply  of  wool,  England  can  look  with 
complacency  on  the  efforts  of  other  manufacturing  coun- 
tries to  obtain  raw  wool.  Eighty  per  cent,  of  what  she 
needs  is  grown  under  the  British  flag. 

France,  as  a  consequence  of  the  Great  War,  has  come 
into  her  own  as  the  mistress  of  the  raw  materials  of 
iron  and  steel  industry.  With  Lorraine  regained,  she 
has  approximately  five  billion  six  hundred  and  thirty 
million  tons  of  potential  iron  ore  reserves.  The  produc- 
tion of  the  Lorraine  districts  that  were  held  by  Germany 
exceeded  twenty-one  million  tons  annually.  The 
Longwy-Brie  district,  toward  which  the  Teutonic  claws 
were  stretched  in  order  to  clutch  an  economic  resource  of 
incalculable  value,  produced  approximately  twenty  mil- 
lion tons.  Normandy  and  other  parts  of  France  added 
relatively  two  million  tons.  Taken  with  Lorraine,  the 
French  iron-ore  production  is  normally  forty -three  mil- 
lion tons,  with  at  least  two  million  tons  more  available 
by  easy  transportation  across  the  Mediterranean  from 
Tunis  and  Algeria.  This  places  France  second  only  to 
the  United  States  in  the  production  of  iron  ore.  This  is 
an  economic  event  of  vast  significance,  although  its  fall 
purport  may  not  be  made  immediately  discernible  by 
the  rapid  development  of  iron  and  steel  industry.  This 
is  because  of  the  lack  of  workers.  But  the  workers  will 
come  in  time. 

French  coal  always  has  been  an  industrial  deficit. 
Germany  had  the  coal,  and  France  in  normal  times  was 


RAW  MATERIALS  61 

compelled  to  import  annually  twenty-two  million  tons' 
and  upward.  ThlaJbefigiency  is  now  cured.  ^  Lorraine 
is  capable  of  a  coal  production  of  at  leasriour  million 
tons  annually.  The  Sarre  Basin,  which  henceforth  eco- 
nomically is  a  part  of  France,  means  ample  coal  for 

.Frenchjndustries^ though  it  is  noToJ  the  besfcoking" 
quality. 

The  possession  of  these  raw  materials  by  England  and 
France  are  an  index  of  the  future  trade  of  the  world. 
They  are  also  a  warning  against  over-confidence.  They 
do  not,  however,  diminish  the  knowledge  that  the  United 
States  possesses  in  abundance  the  primary  raw  materials 
which,  turned  into  manufactured  products,  constitute 
the  bulk  of  the  world's  commerce. 


9 


THE  DIPLOMACY  OF  COMMERCE 


63 


t--%„ 


CHAPTER  V 

THE  DIPLOMACY  OP  COMMERCE 

The  shipwrecked  Yankee  skipper  and  mutual  bargaining  —  The  cele- 
brated Methuen  Treaty  —  Objects  sought  by  En^'land  and  by  Portugal 

—  Adam  Smith's  objections  — Disraeli's  definition  of  trade  diplomacy 

—  Palmerston  on  the  qualities  of  negotiators  —  Tariffs  modified  by  po- 
litical motives  —  Concessions  by  Japan  and  France  to  Great  Britain  — 
Commercial  diplomacy  in  Europe  in  1914  — Trade  spheres  and  rap- 
prochements-After the  war  —  Functions  of  trade  diplomacy  under 
the  new  conditions. 

ELDERLY  readers  may  recall  a  droll  chapter  in 
James  de  Millers  "  The  Dodge  Club."  It  is  of  a 
Yankee  merchant  shipmaster  whose  vessel,  re- 
turning from  Hong-Kong,  is  wrecked  In  mid-ocean.  He 
keeps  afloat  on  the  carcass  of  a  whale,  where  a  passing 
New  England  vessel  finds  him  comfortably  quartered, 
philosophically  awaiting  a  hail.  The  rescuing  skipper 
boards  the  whale,  and  the  shipwrecked  merchant  shows 
him  over  it  as  if  it  were  a  parcel  of  floating  real  estate. 
The  shipwrecked  merchant  asks : 

"  Would  you  like  to  buy  a  whale?  " 

<*  Wa'al,  yes,  I  don't  mind.    I  am  in  that  line  myaelf." 

"  What'll  you  give  for  it?  " 

"  What'll  you  take  for  it?  " 

"  Whatai  you  give?  " 

"  Take?  " 

"Give?'' 

The  dialogue  continues  in  this  manner  for  half  an 
hour,  the  shipwrecked  merchant  remarking  that  he  is 

62 


waiting  for  a  whaling-fleet  to  come  along  and  pay  him 
what  his  whale  is  worth,  while  the  rescuing  skipper  ex- 
plains that  this  is  not  likely,  since  he  is  out  of  the  course 
of  the  whalers.  Then  the  bargaining  comes  closer  to 
a  trade.  The  skipper  proffers  twenty-five  per  cent,  of 
the  oil  after  it  is  barreled,  barrels  and  all,  and  explains 
to  the  owner  of  the  whale  carcass  that  this  is  a  mutually 
advantageous  proffer,  since  it  will  save  a  voyage  to  both. 
It  requires  the  exercise  of  diplomacy,  but  both  finally 
agree  that  this  is  a  mutually  advantageous  bargain,  and 
the  contract  is  closed.  It  is  in  accord  with  the  formula 
of  trade  evolved  by  individual  men  trading  in  their  pri- 
vate capacity. 

The  diplomatic  formula  of  trade  intercourse  be- 
tween nations  was  evolved  when  they  began  to  regu- 
late their  relations  by  treaties  of  amity  and  commerce, 
or  commerce  and  navigation.  With  the  development 
of  their  material  resources,  their  economic  policies  be- 
came more  distinctly  molded  by  what  they  believed  to 
be  their  national  interests,  and  their  commercial  rela- 
tions became  more  intricate  of  solution  on  account  of  the 
necessity  of  reconciling  and  adjusting  their  interests  to 
the  interests  of  other  nations. 

Trade  relations  of  the  European  countries  during  the 
epoch  when  commercial  enterprise  began  to  adventure 
abroad  were  regulated  on  the  assumption  of  securing 
benefits  at  the  expense  of  non-participating  countries. 
Colonial  trade  was  so  completely  a  monopoly  of  the 
mother  country,  and  was  so  fully  recognized  as  such,  that 
it  rarely  entered  into  the  negotiation  of  commercial 
treaties.  The  model  of  these  conventions  in  the  eight- 
eenth century  was  the  celebrated  Methuen  Treaty,  nego- 
tiated in  1703  by  the  British  Minister  of  that  name  ac- 


64 


AMERICAN  FOREIGN  TRADE 


credited  to  Portugal.  The  text  is  blunt,  and  affords 
refreshingly  frank  reading  in  contrast  with  the  stilteii 
phraseology  of  ordinary  treaties  of  friendship  and  com- 
merce, or  of  special  commercial  conventions,  with  their 
long  preambles  and  their  high-sounding  declarations. 

Art.  I.  His  Sacred  Royal  Majesty  of  Portugal,  promises, 
both  in  his  own  name,  and  that  of  his  successors,  to  admit,  for- 
ever hereafter,  into  Portugal,  the  woolen  cloths,  and  the  rest 
of  the  woolen  manufactures  of  the  British,  as  was  the  custom, 
till  they  were  prohibited  by  the  law;  nevertheless  upon  this 
condition : 

Art.  II.  That  is  to  say,  that  Her  Sacred  Royal  Majesty 
of  Great  Britain  shall,  in  her  own  name,  and  that  of  her  suc- 
cessors, be  obliged,  forever  hereafter  to  admit  the  wines  of 
the  grape  of  Portugal  into  Great  Britain;  so  that  at  no  time 
whether  there  shall  be  pekce  or  war  between  the  kingdoms 
of  Britain  and  France,  anything  more  shall  be  demanded 
for  these  wines  by  the  name  of  custom  or  duty,  or  by  what- 
soever other  title,  directly  or  indirectly,  whether  they  shall 
be  imported  into  Great  Britain  in  pipes  or  hogsheads,  or 
other  casks,  than  what  shall  be  demanded  for  the  like  quantity 
or  measure  of  French  wine,  deducting  or  abating  a  third  part 
of  the  custom  or  duty.  But  if  at  any  time  this  deduction 
or  abatement  of  customs,  which  is  to  be  made  as  af(»resaid, 
shall  in  any  manner  be  attempted  and  prejudiced,  it  shall 
be  just  and  lawful  for  His  Sacred  Royal  Majesty  of  Portugal, 
again  to  prohibit  the  woolen  cloths,  and  the  rest  of  the 
British  woolen  manufactures. 

There  was  a  political  purpose  in  this  treaty.  It  was 
to  strengthen  the  ties  between  England  and  Portugal, 
and  the  relationship  thus  established  has  continued  to 
the  present  day. 

But  the  trade  interest  was  the  principal  motive.  Each 
country  sought  definite  commercial  advantages  by  means 
of  an  exclusive  bargain  to  the  specified  disadvantage  of 


THE  DIPLOMACY  OF  COMMERCE  65 

nations  outside  of  the  compact.  On  the  part  of  Portu- 
gal, the  object  was  to  gain  an  advantage  over  France  in 
marketing  Portuguese  wines.  Oporto  merchants  had 
settled  in  London  in  competition  with  the  wine  mer- 
chants from  Bordeaux,  who  also  were  settled  there. 
England's  object  was  to  widen  the  market  for  her  tex- 
tiles. Some  years  previously  Portugal,  in  pursuance  of 
a  policy  of  building  up  the  domestic  industry,  had  sought 
to  accomplish  this  by  prohibiting  the  importation  of 
woolens. 

England  at  this  period  held  a  virtual  monopoly  of  the 
manufacture  of  woolens,  and  if  the  Portuguese  duties 
were  lowered  on  these  commodities,  she  had  nothing  to 
fear  from  the  competition  of  other  countries  in  that 
market.  The  treaty,  therefore,  provided  for  their  ad- 
mission into  Portugal  at  the  old  scale  of  duties,  which 
were  low.  On  their  face  there  was  nothing  discriminat- 
ing in  these  duties,  but  in  order  to  give  Portugal  an  ad- 
vantage for  her  wines  in  England,  discriminating  duties 
were  necessary,  and  consequently  Great  Britain  abated 
one  third  of  the  duties  on  Portuguese  wines  as  compared 
with  wines  from  France.  The  famous  Methuen  Treaty 
was  distinctly  an  exclusive  bargain  which  operated  to 
the  specified  disadvantage  of  a  nation  outside  the  com- 
pact. 

Adam  Smith,  in  a  characteristic  chapter  on  treaties  of 
commerce,  registered  his  objections  to  the  agreement, 
and  insisted  that  it  had  procured  no  considerable  ad- 
vantages for  England.  He  contended  that  the  real  pur- 
pose of  the  Methuen  Treaty  was  to  transfer  a  balance  in 
gold  and  silver,  of  which  Portugal  had  a  surplus  through 
her  monopoly  of  the  Brazilian  trade,  to  England  by  Eng- 
land selling  more  woolens  to  Portugal  than  the  amount 


66 


AMERICAN  FOREIGN  TRADE 


of  the  wines  bought  from  that  country,  and  that  the  re- 
sults were  not  commensurate  with  the  concession.  "  A 
direct  foreign  trade  of  consumption,"  was  his  sententious 
observation,  "is  always  more  advantageous  than  a 
round-about  one." 

Friedrich  List,  a  modern  political  economist  of  the 
opposite  school,  maintained  the  contrary  opinion.  He 
declared  that  the  Methuen  Treaty  was,  as  claimed  by 
its  author,  a  masterpiece  of  British  commercial  policy, 
and  that  its  effect  was  ruinous  to  Portuguese  industry. 
List  gave  statistics  of  the  woolen  industry  at  the  period 
to  support  his  contention. 

The  motive  of  both  countries  was  to  obtain  mutual  ad- 
vantage through  reciprocal  equivalents.  The  recip- 
rocal equivalents  were  to  be  obtained,  however,  to  the 
disadvantage  of  a  third  party,  which  in  this  case  was 
France.  But  there  was  bargaining,  and  the  bargaining 
as  between  the  two  countries  was  carried  on  in  the  ne- 
gotiations much  as  was  the  trading  between  the  char- 
acters in  "  The  Dodge  Club." 

Commerce  between  nations  is  more  complex  than  the 
trade  between  the  shipwrecked  merchant  and  the  skipper 
of  the  rescuing  vessl,  but  the  principles  are  the  same.  It 
is  a  matter  of  give  and  take  for  mutual  profit,  with  mu- 
tual concessions. 

"  Diplomacy,"  said  Benjamin  Disraeli,  in  a  debate  in 
the  House  of  Commons,  in  1843,  on  the  proposed  treaty 
of  commerce  with  France  — "  diplomacy  stepped  in  to 
weigh  and  adjust  contending  interests,  to  obtain  mutual 
advantages,  and  ascertain  reciprocal  equivalents."  The 
Continental  Congress  of  the  United  States  had  antici- 
pated Disraeli's  dictum  as  to  reciprocal  advantages  by 
nearly  three  quarters  of  a  century.    When  in  May,  1777, 


THE  DIPLOMACY  OF  COMMERCE 


67 


it  commissioned  Arthur  Lee  as  minister  to  Vienna  and 
Berlin,  he  was  given  authority  to  negotiate  commercial 
treaties  with  this  specific  direction : 

And  it  must  never  be  forgotten  in  these  commercial  treaties 
that  reciprocal  and  equal  advantage  to  the  people  of  both 
countries  be  firmly  and  plainly  secured. 

To  weigh  and  adjust  contending  interests  in  the  trade 
intercourse  of  countries  must  be  done  in  the  light  of  na- 
tional interests  as  reflected  in  economic  policies  some- 
times antagonistic,  or  at  least  divergent.  Yet  in  prac- 
tice these  policies  may  prove  more  flexible  than  the 
theory  of  them  would  seem  to  admit.  The  favored  na- 
tion clause  is  the  instrument  of  this  flexibility. 

To  obtain  mutual  advantages  properly  assumes  that 
international  commerce  cannot  be  regulated  on  the  basis 
of  the  peddler's  pack  or  the  huckster's  cart.  Mutuality 
eliminates  the  notion  that  the  diplomacy  of  commerce 
consists  in  getting  the  best  of  the  bargain  with  another 
country.  It  assumes  that  there  is  something  to  exchange 
on  each  side  on  the  basis  of  a  fair  bargain. 

Perhaps  Disraeli  would  better  have  put  the  ascertain- 
ing of  reciprocal  equivalents  before  obtaining  mutual 
advantages,  for  it  is  necessary  to  know  the  nature  of 
products  to  be  exchanged  before  their  mutuality  can  be 
determined.  While  an  exchange  of  commodity  for  com- 
modity sometimes  is  effected,  this  is  not  always  a  re- 
ciprocal equivalent,  and  the  reciprocity  is  obtained 
through  the  concession  granted  on  some  other  article. 

The  qualities  of  the  negotiators  enter  very  largely  into 
the  diplomacy  of  commerce.  Lord  Palmerston,  in  dis- 
cussing before  a  committee  of  the  House  of  Commons 
the  estimates  for  diplomatic  expenses,  once  remarked: 


i« 


68 


AMERICAN  FOREIGN  TRADE 


! 


"  Conversations  which  end  in  beneficent  treaties  are  more 
likely  to  be  begun,  and  professional  or  national  acerbities 
be  removed,  in  social  intercourse  than  in  any  other  way." 
The  observation  has  a  general  application,  but  it  is  espe- 
cially pertinent  to  treaties  of  commerce,  since  irritation 
is  frequently  caused  by  the  commei'cial  policies  of  coun- 
tries between  which  the  bond  of  fellowship  is  strong. 

When  Lord  Elgin  came  to  Washington  in  1854,  and 
negotiated  the  Canadian  Reciprocity  Treaty  with  Secre- 
tary Marcy,  his  social  campaign  was  said  to  be  thi^  means 
of  securing  its  ratification  by  a  hostile  Senate.  Lau- 
rence Oliphant,  who  was  his  secretary,  has  given  a  vivid 
picture  of  official  life  in  the  National  Capital  at  that 
period,  and  it  is  perhaps  due  to  his  entertaining  ac^count 
that  the  ratification  is  misleadingly  credited  to  social 
influence.  These  were  not  the  real  influences,  but  Lord 
Elgin's  personal  charm  undoubtedly  was  a  strong  factor 
in  the  actual  negotiation  of  the  treaty. 

In  negotiations  personal  qualities  are  important.  The 
business  is  not  one  for  blacksmiths  or  for  amateur  diplo- 
mats. Tact,  patience,  persistence,  suavity,  good  humor 
under  exasperating  circumstances,  are  all  essential  to  a 
successful  negotiator;  but  there  are  other  qualities.  lie 
must  thoroughly  know  the  case  which  he  is  pressing  on 
behalf  of  his  own  country,  yet  like  a  good  lawyer  he  must 
also  know  the  case  of  the  opposing  side.  He  must  un- 
derstand the  industrial  and  commercial  conditions,  the 
political  and  fiscal  tendencies  of  the  other  country,  and 
the  principles  which  determine  its  economic  policies. 

Germany's  comprehensive  series  of  commercial  treaties 
are  an  illustration  of  this  truth.  They  were  not  based 
solely  on  a  thorough  knowledge  of  the  needs  of  German 
trade  and  industry,  which  was  obtained  through  the  co- 


^1 


THE  DIPLOMACY  OF  COMMERCE 


69 


operation  of  business  and  industry  in  the  preliminary 
investigations.  The  German  Foreign  Office  acted  with 
equally  full  information  of  the  economic  and  fiscal  re- 
sources of  the  other  nations. 

Negotiations  for  treaties  of  a  political  character  some- 
times are  undertaken  with  one  or  both  parties  not  desir- 
ing to  reach  an  agreement.  In  the  play  of  wits  adroit 
diplomats,  trained  in  the  old  school  of  diplomacy  as  a 
career  of  craft,  occasionally  add  to  their  reputation. 
Commercial  diplomacy  in  the  negotiation  of  trade  trea- 
ties and  the  adjustment  of  questions  growing  out  of  di- 
vergent interests  affords  little  ground  for  such  cunning. 
Both  parties  want  to  find  a  common  basis,  for  both  are 
interested  in  maintaining  and  extending  the  business  of 
their  nationals. 

Very  often  the  diplomacy  of  commerce  partakes  more 
of  a  political  character  than  of  a  fiscal  and  economic 
adjustment.  Sometimes  political  motives  are  distinctly 
in  the  foreground,  as  in  the  Cobden  Treaty  with  France 
in  1860,  when  one  purpose  was  to  allay  the  jealousy  and 
irritation  between  the  two  countries,  which  was  so  acute 
that  it  had  brought  them  to  the  verge  of  war. 

The  Cobden  Treaty  was  a  vivid  illustration  of  the 
spirit  of  genuine  commercial  diplomacy.  Mutual  advan- 
tages would  be  obtained,  but  before  this  could  be  done 
there  were  contending  interests  to  be  weighed  and  re- 
ciprocal equivalents  to  be  ascertained.  England  was  in 
the  full  flush  of  free  trade,  which  was  giving  enormous 
prosperity.  France  was  in  the  enjoyment  of  a  system 
of  stiff  protection,  which  had  an  overflowing  measure  of 
approval  because  of  its  results.  Yet  England  yielded 
something  of  the  free-trade  principle,  and  France  actu- 
ally modified  her  system  of  protection.     Cobden,  while 


ly 


70 


AMERICAN  FOREIGN  TRADE 


THE  DIPLOMACY  OF  COMMERCE 


71 


undertaking  to  show  that  the  treaty  was  no  deviation 
from  free-trade  principles,  boldly  defended  it  as  hav- 
ing the  higher  object  of  maintaining  peace  between  the 
two  countries.  In  later  years  France  negotiated  a  trade 
treaty  with  Italy  in  <jhe  avowed  motive  of  improving  the 
mutual  political  relations. 

British  diplomacy  frequently  has  invoked  the  political 
motive  where  British  trade  interests  were  vitally  con- 
cerned. Japan,  in  1910,  revised  her  tariff  with  the  spe- 
cial object  of  developing  domestic  industries.  The  tex- 
tile industry  was  the  particular  solicitude  of  the  Jap- 
anese statesmen  who  believed  in  a  national  economic 
policy.  The  schedule  originally  adopted  by  the  Japanese 
Diet  was  one  of  very  high  protection,  which  would  have 
lessened  materially  the  importation  of  British  textiles. 
The  British  Government  diplomatically  invoked  the 
Anglo-Japanese  Alliance.  Japan  heeded  the  represen- 
tation of  her  ally.  A  new  tariff  schedule  with  the  textile 
duties  substantially  reduced  was  submitted  to  th(»  Diet, 
and  was  adopted.  British  trade  diplomacy  triumphed 
through  political  instrumentalities. 

Another  illustration  was  afforded  across  the  channel. 
When  France,  in  1911,  revised  her  tariff  on  a  higher  pro- 
tective basis,  many  of  the  new  duties  bore  heavily  on 
the  manufactured  products  of  the  United  Kingdom. 
The  British  Government,  with  diplomatic  suavity,  in- 
voked the  Entente  Cordiale.  Thereupon  the  schedules 
were  modified.  France  better  could  afford  to  let  some  of 
her  industries  get  along  with  a  lesser  degree  of  protection 
than  to  risk  losing  the  strength  in  European  affairs 
which  the  Entente  gave  her.  Subsequent  events  fully 
justified  the  tariff  concessions  made  to  England. 

The  diplomacy  of  commerce  thus  was  the  medium  for 


adjusting  the  difficulties  that  England  had  with  Japan 
and  France,  respectively.  In  both  instances  the  recip- 
rocals were  not  purely  trade  reciprocals,  and  their  ad- 
justment to  the  respective  national  policies  was  a  diplo- 
matic one.     Yet  it  had  a  wider  application. 

During  a  third  of  a  century  trade  diplomacy  had 
molded  the  commercial  intercourse  of  the  European 
countries  among  themselves  and  with  the  rest  of  the 
world.  Bitter  waters  had  become  sweetened.  Acrid 
controversies  had  become  softened.  All  countries,  it 
seemed,  were  following  their  own  lines  of  economic  de- 
velopment in  accordance  with  nationalistic  needs,  but 
also  in  harmony  with  the  fiscal  policies  of  other  commer- 
cial nations. 

On  the  surface  the  trade  relations  of  Europe  in  1913 
and  during  the  first  months  of  1914  was  one  of  tranquil 
promise.  The  dislocation  of  international  business 
caused  by  the  Balkan  wars  had  not  been  entirely  normal- 
ized, but  was  in  the  process  of  adjustment,  and,  more- 
over, the  area  affected  was  a  limited  one.  Controverted 
questions  of  spheres  of  influence  were  well  along  toward 
settlement.  Democratic  England  and  autocratic  Rus- 
sia, as  one  fruit  of  their  rapprochement,  had  divided  Per- 
sia between  them,  regardless  of  Persia's  wishes,  and 
the  last  source  of  friction  between  the  great  island  world 
power  and  the  great  European-Asiatic  land  power  had 
been  removed. 

European  nations  had  partitioned  Asiatic  Turkey  in 
a  manner  satisfactory  to  themselves.  France  had  been 
given  commercial  control  in  Syria,  while  England  had 
retained  the  extensive  territory  tributary  to  the  Med- 
iterranean from  Smyrna  to  Aleppo.  Germany  finally 
had  overcome  the  opposition  of  Great  Britain,  France, 


f 


72 


AMERICAN  FOREIGN  TRADE 


and  Russia  to  the  construction  of  the  Bagdad  Railway. 
Mesopotamia,  with  its  unexploited  mineral  resources,  its 
timber  reserves,  its  cotton  area,  and  other  agricultural 
wealth,  had  become  hers.  England  had  acquiesced  in 
Germany  completing  the  railway  line  to  a  terminus  on 
the  Tigris  beyond  Bagdad,  with  the  agreement  on  the 
part  of  Germany  not  to  extend  to  the  Persian  Gulf. 
This  was  Germany's  tacit,  if  not  formal,  recognition  of 
the  British  Monroe  Doctrine  in  the  Persian  Gulf  and 
the  Arabian  Sea. 

The  trade-winds  seemed  to  be  blowing  smoothly  when 
the  hurricane  rose  and  swept  everything  in  its  fury.  In 
its  devastating  wake  came  the  revelation  of  Germany's 
economic-militaristic  plans  for  world  domination. 

The  Great  War  ended  with  Germany  made  impotent 
as  a  world-trade  power.  It  ended  also  with  political 
and  fiscal  policies  of  powerful  nations  in  the  process  of 
radical  changes,  with  nebulous  economic  alliances  inde- 
terminate as  to  the  limitations  under  which  they  might 
function,  and  with  favored  nations  no  longer  occupying 
the  place  they  once  held  in  the  commercial  relations  of 
more  than  one  half  the  countries  of  the  world. 

At  first  thought  these  startling  changes  might  seem 
to  dispense  with  the  diplomacy  of  commerce.  More 
careful  thought  of  the  vast  problems  yet  to  be  resolved 
indicates  that  it  will  have  a  wider  field  than  ever  before. 
Its  future  functions  are  to  be  evolved  out  of  political 
alliances,  proclaimed  or  implied,  and  in  accordance  with 
new  interpretations  and  new  adaptations  of  the  princi- 
ple of  favored-nation  treatment  in  commercial  inter- 
course. They  are  to  be  exercised  in  the  knowledge  of 
newly  born  nationalistic  policies,  of  international  pacifi- 
cism seeking  to  adjust  itself  to  international  competi- 


THE  DIPLOMACY  OF  COMMERCE 


73 


tion,  and  to  equality  in  the  world's  markets  under  the 
restrictions  of  national  economic  policies.  The  adjust- 
ment of  contending  interests,  the  obtaining  of  mutual  ad- 
vantages, and  the  ascertainment  of  reciprocal  equiv- 
alents become  more  important  than  in  the  past.  The 
field  is  wider,  but  the  complexities  are  greater.  At  the 
outset  it  is  necessary  to  determine  the  prospect  as  to. 
economic  alliances  and  favored  nations. 


II 


CHAPTER  VI 


ECONOMIC  ALLIANCES  AND  FAVORED  NATIONS 


Echoes  of  the  Paris  Pact  of  1916  —  Summary  of  its  provisions  — 
Inheritance  in  peace  settlement  —  Economic  boycotts  and  trade  wars  — 
Fiscal  policies  of  the  victors  —  New  basis  for  commercial  intercourse  — 
Prospective  readjustments  of  favored  nation  practice  —  Review  of  the 
European  doctrine  —  Application  to  tariflfs  —  Maximum  and  minimum 
schedules  —  Germany's  conventional  tariffs  not  the  work  of  supermen 
—  Methuen  principle  modernized  in  the  Anglo- Japanese  Treaty  —  In- 
dustrial instinct  of  nations  —  Trend  to  nationalistic  policies  in  world 
trade. 


M  ' 


THERE  is  to  be  a  new  order  of  world  trade.  Im- 
plied, if  not  formal,  economic  alliances,  in  the 
view  of  some  statesmen,  are  necessary  to  preserve 
the  results  of  the  war.  Diverse  national  interests  and 
divergent  national  policies  are  nevertheless  to  function 
within  this  Allied  sphere.  There  is  to  be  a  world  divi- 
sion into  favored  and  ill-favored  nations.  The  beginning 
is  the  recasting  of  the  favored-nation  practice  among 
the  European  countries. 

Without  accepting  these  assumptions,  the  situation 
may  be  reviewed  in  the  light  of  reasonable  probabilities. 
The  Paris  Pact  of  July,  1916,  is  the  genesis  of  the  intangi- 
ble economic  league  of  the  European  Allies.  This  pact 
was  agreed  to  at  a  conference  of  the  Allied  governments 
leld  in  Paris  in  June,  1916.  It  was  formulated  after  two 
years  of  stress  in  which  the  full  extent  of  the  German  am- 
bition for  world  rule  had  been  disclosed.  It  also  came  at 
a  time  when  the  military  prospects  of  the  Allied  govern- 
ments, after  two  years'  discouragement,  had  become 

74 


ECONOMIC  ALLIANCES 


75 


promising.  The  later  failure  to  realize  these  war  ex- 
pectations did  not  affect  the  pact  itself.  It  was  the  child 
of  a  brief  period  of  exultation  and  exaltation.  Viewed 
as  a  historical  phenomenon,  the  pages  of  the  past  af- 
forded no  parallel  to  it.  But  it  was  equally  true  that 
the  pages  of  the  past  afforded  no  counterpart  to  the 
German  economic-militaristic  organization. 

The  Paris  Pact  covered  three  periods,  known  respect- 
ively as  the  war  period,  the  reconstruction  period,  and 
the  peace  period.  The  first  was  purely  temporary  and 
may  be  eliminated  from  consideration.  The  second  pe- 
riod related  to  transitory  measures,  and  especially  to  the 
commercial,  agricultural,  maritime,  and  industrial  re- 
habilitation of  the  countries  devastated  by  the  German 
troops.  Its  leading  feature  was  the  agreement  not  to 
restore  the  most-favored-nation  treatment  to  the  enemy 
powers  for  a  period  to  be  fixed  by  mutual  agreement ;  to 
conserve  the  natural  resources  of  the  respective  Allied 
countries  through  special  arrangements  to  facilitate  the 
interchange  of  these  resources ;  and  to  subject  goods  orig- 
inating in  the  enemy  countries  either  to  prohibition  or  to 
special  regimes  of  an  effective  character. 

The  proposed  permanent  measures  were  the  corollary 
of  the  transitory  provisions,  and  were  described  as  meas- 
ures of  mutual  assistance  and  collaboration.  They 
were  in  substance  the  stipulation  that  the  signatory 
parties  should  take  the  necessary  steps  to  render  them- 
selves independent  of  the  enemy  countries  in  so  far  as 
regarded  the  raw  materials  and  manufactured  articles 
essential  to  the  normal  development  of  their  economic 
activities.  Enemy  countries  further  were  to  be  denied 
raw  materials  for  their  industries  by  means  of  discrim- 
inating export  duties,  and  their  cost  of  manufacturing 


'. 


m 


76 


AMERICAN  FOREIGN  TRADE 


thus  increased,  although  it  was  not  specifically  set  forth 
that  this  increase  in  cost  was  the  motive.  Allied  control 
of  shipping  and  a  financial  union  were  included  in  the 
project.^ 

If  the  shades  of  Adam  Smith  and  his  French  compeers, 
Quesnay  and  Turgot,  hovered  over  Paris  in  the  summer 
of  1916,  they  must  have  meditated  on  the  fallibility  of 
human  judgment ;  for  it  was  they  who  had  laid  down  the 
positive  principles  which  were  expected  to  insure  the 
happiness  of  the  civilized  peoples  of  the  world  by  uni- 
versal free  trade.  The  shade  of  Quesnay,  in  particular, 
must  have  meditated  deeply,  for  it  was  he  who  dreamed 
of  the  world-economic  state,  and,  with  his  fellow  physi- 
ocratists,  traced  the  outlines  of  the  universal  republic  of 
commerce,  starting  with  the  premise  that  the  merchants 
of  all  countries  were  to  be  considered  as  constituting  a 
single  commercial  republic.  But  they  could  not  have 
conceived  of  the  politico-military  system  that  was  evolved 
in  the  European  state  that  became  modern  Germany. 

The  United  States  had  not  become  a  belligerent  when 
the  Paris  Pact  was  adopted.  Russia  was  a  party  to  it, 
as  the  time  was  a  year  before  the  rise  of  Bolshevism  and 
the  crumbling  of  the  great  European-Asiatic  power. 
Both  these  circumstances  had  an  influence  on  the  moral 
force  of  the  agreement.  There  was  criticism  in  the 
United  States,  and  President  Wilson's  reply  to  the  peace 
plea  of  the  Vatican,  in  which  he  deprecated  selfish  and 
exclusive  economic  leagues  was  interpreted  as  a  disap- 
proval of  the  Paris  Pact.  Responsible  statesmen  in 
England  met  this  implied  criticism  with  the  statement 
that  it  was  a  defensive  measure  only. 

1  For  full  text  of  the  Paris  Pact,  see  Senate  Document  No.  491,  64th 
Congress,  Ist  Session,  "Trade  AgreementH  Abroad." 


ECONOMIC  ALLIANCES 


77 


How  far  the  principles  of  the  Allied  economic  alli- 
ance of  1916  found  lodgment  in  the  peace  settlement  will 
be  more  or  less  a  matter  of  individual  opinion.  The  pos- 
sibility of  economic  mesalliances  is  not  however  to  be 
ignored.  Nations  mated  in  world  peace  policies  may 
nevertheless  be  mismated  in  world  trade. 

The  principal  economic  provision  in  the  League  of 
Nations  covenant  has  been  described  as  the  boycott.  The 
boycott  is  the  weapon  of  the  weak.  It  is  a  form  of  pas- 
sive resistance.  An  oppressed  Irish  peasantry  first  gave 
it  vitality  and  a  name.  Trade  boycotts  are  most  effective 
when  employed  by  a  people  rather  than  by  a  government. 
Usually  they  prove  temporary.  The  Chinese  boycott  of 
Japanese  goods  in  1915  was  an  example  of  resistance  to 
what  was  assumed  to  be  an  unfriendly  policy  by  a  power- 
ful nation.  The  Chinese  boycott  of  American  goods  in 
1906  was  because  of  resentment  over  exclusion  laws. 
It  was  an  isolated  case.  It  seemed  to  show  how  small  a 
part  gratitude  plays  in  international  affairs,  since  the 
United  States  alone,  among  the  Christian  nations,  had 
remitted  the  indemnity  exacted  for  the  Boxer  outrages. 
Its  temporary  nature  was  apparent  when  China  again 
turned  to  the  United  States  as  a  disinterested  friend. 

Trade  wars  are  not  like  boycotts.  They  are  carried 
on  by  governments.  They  mean  that  two  parties  are 
actively  and  aggressively  engaged  in  the  struggle.  They 
are  mutually  destructive,  and  it  is  seldom  that  either 
belligerent,  when  the  time  comes  to  cry  quits,  is  able  to 
view  the  outcome  with  satisfaction. 
^  The  economic  boycott  proposed  in  the  League  of  Na- 
tions covenant  is  neither  the  act  of  a  people  in  refusing 
to  buy  goods  from  an  obnoxious  country  nor  that  of  two 
governments  fighting  each  other  with  trade  weapons. 


I. 


Ill 


ll!!! 


:  M' 


It 


78 


AMERICAN  FOREIGN  TRADE 


Its  background  is  a  denial  of  food  and  raw  materials  to 
offending  nations  as  much  as  a  prohibitive  refusal  to  buy 
their  goods.  It  is  essentially  a  war  measure,  and,  as  is 
usual  with  war  measures,  one  in  which  neutrals  would  be 
made  to  suffer  penalties  for  not  becoming  belligerents. 
It  does  not  merit  further  discussion  in  a  consideration 
of  world  commerce  under  peace  conditions. 

The  action  of  the  several  victor  nations  individually 
is  of  more  consequence  to  world  trade  than  their  actions 
collectively  in  forming  theoretical  economic  alliances  or 
in  providing  to  utilize  trade  and  industry  as  a  war 
weapon.  The  most  significant  action  of  the  European 
nations  was  their  denunciation  of  their  commercial  trea- 
ties which  contained  the  favored -nation  clause.  Since 
such  of  these  treaties  as  existed  with  the  enemy  powers 
were  automatically  terminated  by  the  war,  the  denuncia- 
tion affected  principally  the  Allies  among  themselves 
and  neutrals.  This  action  was  clearing  the  way  for  the 
development  of  new  commercial  relations  and  the  re- 
vision of  fiscal  policies  including  tariffs. 

The  question  of  the  future  relates  chiefly  to  the  fa- 
vored-nation treatment.  The  evolution  of  the  favored- 
nation  principle  has  not  been  a  steady  one.  In  the  ear- 
lier stages  its  history  was  marked  by  acrid  chapters  in 
diplomacy.  Governments  changed  their  practi(*e  and  at 
the  same  time  sought  to  argue  that  they  were  consistent. 
All  the  time  there  were  deviations  from  the  [)rinciple, 
variations  in  practice,  and  reservations  in  interpreta- 
tion. Gradually  it  came  about,  nevertheless,  that  the 
European  countries,  the  majority  of  the  Spanish- Ameri- 
can countries,  and  Japan  adopted  what  was  known  as 
the  unconditional  favored-nation  construction,  while  the 
United  States  adhered  to  the  conditional  construction 


ECONOMIC  ALLIANCES 


79 


and  developed  a  distinct  policy  of  its  own.  The  position 
of  the  United  States  has  been  that  commercial  favors 
granted  to  third  countries  shall  be  enjoyed  by  the  party 
claiming  the  favored-nation  treatment  gratuitously,  if 
so  granted;  or  for  equivalent  compensation,  if  granted 
for  a  price.  The  American  practice  is  discussed  in  a 
subsequent  chapter.^ 

In  sum  and  substance  the  European  construction  of 
the  most-favored-nation  clause  is  that  trade  and  naviga- 
tion concessions  granted  by  one  nation  to  another  apply 
automatically  to  all  countries  with  which  the  nation 
granting  concessions  has  general  treaties  for  providing 
favored  nation  treatment.  A  historic  example  of  the 
form,  with  an  instance  of  reservations  sometimes  made, 
is  found  in  the  Treaty  of  Frankfort,  which  victorious 
Germany  imposed  on  vanquished  France  in  1870.^ 

Art.  XI.  Les  traites  de  Commerce  avee  les  differents  etata  de 
FAllemagne  ayant  ete  annules  par  la  guerre,  le  (Jouvernement  Allemand 
et  la  Gouvernement  Francais  prendront  pour  base  de  leurs  relations  eom- 
merciale  le  regime  du  traitement  reeiproque  sur  le  pied  de  la  nation  la 
plus  favoris^e. 

Sont  compris  dans  eette  regie  les  droits  d'entree  et  de  sortie,  le 
transit,  les  formalites  douanieres,  I'admission  et  le  traitement  des 
Bujects  des  deux  nations  ansi  que  de  leurs  agents. 

Toutefois  seront  exceptees  de  la  r^gle  susdite  les  faveurs  qu'ime  des 
Parties  Contractentes  par  des  Traites  de  Commerce,  a  accord^es  ou 
accordera  a  des  Etats  autres  que  ceux  qui  suivent :  —  L'Angleterre,  la 
Belgique,  les  Pays-Bas,  la  Suisse,  I'Autriche,  la  Russie. 

An  example  of  the  broadest  form  of  unconditional 
favored-nation  treatment  is  found  in  the  language  of  a 
British-Paraguayan  Treaty  of  1884.  Article  II  of  that 
treaty  reads : 

The  contracting  parties  agree  that  in  all  matters  relating 

1  See  Chapter  VIII,  "  American  Trade  Policy." 

2 The  text  of  the  favored-nation  clause  in  this  treaty  is  as  follows: 


f 


80 


AMERICAN  FOREIGN  TRADE 


ECONOMIC  ALLIANCES 


81 


I 


Ihij 


' 


to  commerce  and  navigation,  any  privilege,  favor,  or  im- 
munity  whatever,  which  either  ...  has  actually  granted  or 
may  hereafter  grant  to  the  subject  or  citizens  of  any  other 
State  shall  be  extended  immediately  and  unconditionally  to 
the  subjects  or  citizens  of  the  contracting  parties;  it  being 
the  intention  that  the  trade  and  navigation  of  each  country 
shall  be  placed,  in  all  respects,  by  the  other  on  the  footing 
of  the  most  favored  nation. 

In  the  treaty  of  1860  between  France  and  England, 
known  as  the  Cobden  Treaty,  the  statement  of  the  prin- 
ciples was  more  simple.    Article  V  provided : 

Each  of  the  high  contracting  parties  engages  to  extend 
to  the  other  any  favor,  any  privilege,  or  diminution  of  tariff 
which  either  of  them  may  grant  to  a  third  power  in  regard 
to  the  importation  of  goods  whether  mentioned  or  not  men- 
tioned in  the  treaty  of  23rd  of  January,  1860. 

France  was  then  under  a  high  protective  tariff,  while 
Great  Britain  was  under  free  trade.  The  treaty  made 
a  reservation  or  stipulation  intended  to  adapt  its  pro- 
visions to  the  British  customs  tariff.  This  was  that  on 
goods  subject  to  indirect  taxation  in  England  there 
should  be  levied,  when  imported  from  abroad,  a  duty  cor- 
responding to  the  tax  plus  the  somewhat  higher  rate  to 
compensate  English  producers  for  the  increasing  cost 
which  they  encountered  as  a  result  of  the  collection  of  the 

tax.^ 

The  disciples  of  Cobden  in  their  explanation  of  the  fail- 
ure of  their  great  leader's  prophecy  of  universal  free 
trade  within  fifty  years  have  been  in  the  habit  of  describ- 
ing the  favored-nation  clause  as  the  sheet-anchor  of  free 
trade.    Economists  of  the  opposite  school,  with  equal 

iFor  full  review  of  favored  nation  treaties  see  **  Reciprocity  and 
Commercial  Treaties,"  United  States  Tariff  Commission,  Washington, 
1919. 


reason,  have  characterized  it  as  the  bulwark  of  protec- 
tion in  accordance  with  nationalistic  policies.  It  has 
been  described  as  a  device  for  lowering  high  tariffs,  and, 
under  the  European  practice,  that  undoubtedly  has  been 
the  effect ;  but  there  also  has  been  the  preliminary  prac- 
tice of  enacting  high  protective  duties  as  the  basis  for. 
concessions.  The  results  of  the  general  practice,  how- 
ever, are  more  important  than  the  claims  of  the  contro- 
versalists.  Under  the  unconditional  interpretation  of 
the  favored-nation  treatment,  with  frequent  modifica- 
tions, the  European  nations  in  the  course  of  half  a  cen- 
tury secured  uniformity  in  commercial  intercourse  by 
developing  a  system  of  conventional  tariffs. 

All  the  leading  commercial  nations  with  the  exception 
of  Great  Britain,  which  was  adhering  to  a  purely  revenue 
tariff,  at  the  outbreak  of  the  Great  War  had  adopted  the 
double  tariff  system  on  the  basis  of  maximum  and  mini- 
mum schedules.  Germany  and  France  were  the  expo- 
nents of  the  different  applications  given  to  the  sys- 
tem through  these  two  sets  of  schedules.  German 
policy  assumed  the  expansion  of  exports  as  the  primary 
and  principal  national  necessity.  It  assumed  com- 
parative safety  from  foreign  competition.  The  French 
system,  on  the  contrary,  assumed  primarily  the  neces- 
sity of  defending  and  fomenting  the  national  production, 
both  agricultural  and  industrial,  from  foreign  compe- 
tition. It  looked  only  secondarily  to  the  expansion  of 
exports.  In  practice  the  French  system  was  readjusted 
as  a  working  measure  through  administrative  methods. 
Germany^s  system  had  less  flexibility,  but  under  her 
policy  fixity  was  more  important  than  flexibility. 

Germany's  conventional  tariff  system  originated  after 
the  adoption  of  the  Zollverein,  or  Customs  Union,  of  the 


v~^ 


I 


'  I 


ll  .i 


m 


82 


AMERICAN  FOREIGN  TRADE 


several  states  in  1870.  The  Imperial  German  Govern- 
ment in  1879  concluded  reciprocity  treaties  with  seven 
European  countries.  The  negotiations  were  conducted 
on  the  basis  of  the  existing  tariff,  the  schedules  of  w  hich 
were  reduced  to  the  countries  that  entered  into  the 
treaties  and  automatically  to  those  which  were  entitled 
to  favored-nation  treatment.  The  reduced  tariff,  being 
based  on  commercial  conventions,  was  known  as  the  con- 
ventional tariff,  while  the  old  tariff,  which  was  not  abro- 
gated, was  called  the  general  tariff. 

Germany  had  specific  commercial  conventions  with 
not  more  than  a  dozen  nations,  but  under  the  automatic 
operation  of  the  favored-nation  clause  fully  fifty  coun- 
tries enjoyed  her  conventional  tariff  rates.  In  illustra- 
tion of  the  operation  of  this  clause,  the  conventional 
treaty  with  France  made  a  reduction  from  the  German 
general  tariff  of  twenty  per  cent,  on  machine  tools  in 
return  for  an  equivalent  reduction  by  France  on  Ger- 
man leather  goods.  England  and  Italy,  having  favored- 
nation  treaties  with  France  and  Germany,  got  their 
leather  goods  into  France  and  their  machine  tools  into 
Germany  at  the  conventional  rates.  If  France  had  re- 
duced the  duty  on  coal  from  England,  the  reduced  rate 
would  have  applied  to  German  coal. 

The  French  system  of  maximum  and  minimum  sched- 
ules differed  somewhat  from  the  conventional  tariff  sys- 
tem. Instead  of  two  rates  for  a  selected  list  of  articles, 
as  in  the  case  of  the  German  tariff,  it  provided  two  rates 
on  the  majority  of  articles  on  which  duties  were  im- 
posed. In  the  application  of  these  rates  the  maximum 
schedule  corresponded  to  the  general  tariff,  and  the 
minimum  schedule  to  the  conventional  tariff.  The  Eu- 
ropean nations  which  adopted  the  maximum  and  mini- 


'^iki.; 


^•, 


ECONOMIC  ALLIANCES 


83 


mum  schedule  as  the  basis  of  their  tariff  systems  were 
France,  Spain,  Portugal,  Greece,  and  Norway.  The  na- 
tions which  adopted  the  conventional  system  were  Ger- 
many, Austria-Hungary,  Russia,  Italy,  Switzerland, 
Serbia,  Rumania,  and  Bulgaria. 

In  the  application  of  the  favored  nation  clause  as  a. 
modifying  element,  the  practice  of  modern  commercial 
intercourse  by  the  European  nations  was  the  reversal  of 
that  which  obtained  in  the  celebrated  Methuen  Treaty. 
The  contracting  countries  did  not  seek  to  establish  trade 
relations  to  their  mutual  advantage  by  providing  for  the 
specific  disadvantage  of  other  countries,  as  was  done  in 
that  convention.  Instead,  each  sought  to  secure  conces- 
sions on  the  products  in  which  it  w^as  most  interested  in 
obtaining  a  market,  leaving  other  countries  to  take  care 
of  themselves.  In  some  instances  this  was  a  reversion  to 
the  commercial  treaties  among  the  Italian  City  States 
of  the  thirteenth  century,  in  which  the  favored-nation 
principle  existed  in  germ  form.  But  its  application  was 
much  more  complex.  The  schedules  were  modified  by 
means  of  numerous  classifications. 

Germany  has  been  given  an  undeserved  reputation  for 
ability  in  manipulating  these  classifications,  so  that 
favored-nation  rates  meant  something  or  nothing,  just  as 
she  chose  to  have  them  mean.  The  misleading  argument 
of  percentages  in  specific  treaties  is  sometimes  resorted 
to  to  prove  the  case,  but  Germany  was  not  superman  in 
making  tariff  treaties  any  more  than  in  erecting  a  mod- 
ern state  on  a  biological  argument  of  the  right  of  might 
and  of  the  survival  of  the  fittest.  In  her  passion  for 
minutiae  she  frequently  overlooked  advantages  which 
might  have  been  obtained  through  a  broader  spirit.  To 
her  tariff -makers  a  pinhead  was  as  big  as  a  crowbar. 


k 


1 1 


I , 


!  . 


!  I  ■  ! 


84 


AMERICAN  FOREIGN  TRADE 


The  Russo-German  treaty  of  1894  has  been  frequently 
cited  as  an  evidence  of  Teutonic  super-shrewdness.  Rus- 
sia and  Germany  had  been  engaged  in  a  tariff  war  which 
had  proved  mutually  disadvantageous.  The  commercial 
convention  showed  the  full  knowledge  of  Russia's  eco- 
nomic and  industrial  possibilities.  Germany  utilized 
this  knowledge  to  secure  concessions  to  her  own  advan- 
tage and  to  the  disadvantage  of  competitors  for  Russian 
trade.  But  Russia  also  prospered  in  her  trade  relations 
with  Germany.  She  was  not  the  helpless  victim  of  eco- 
nomic exploitation  that  has  been  representedv  This  is 
not  the  popular  view,  but  it  is  borne  out  by  the  trade 
statistics,  and  the  general  features  of  the  intercourse  be- 
tween the  two  countries. 

To  go  afield  from  the  intricacies  of  the  European 
tariffs,  a  clear  illustration  of  the  application  of  the  fa- 
vored-nation clause  is  found  in  the  Far  East.  It  is 
shown  in  the  tariff  treaties  of  Japan  made  in  1911  with 
England  and  Germany.  Both  those  countries  demon- 
strated how  the  principle  could  be  applied  to  their  re- 
spective commercial  policies. 

Article  VIII  of  the  treaty  between  England  and  Japan 
provided  that  the  articles,  the  produce  or  manufacture 
of  the  United  Kingdom  enumerated  in  a  schedule  which 
was  annexed,  should  not,  on  importation  into  Japan,  be 
subjected  to  higher  customs  duties  than  those  specified 
in  that  schedule.  The  textile  and  the  iron  and  steel 
schedules  were  the  principal  ones.  The  duties  specified, 
particularly  on  cottons,  were  consideraMy  lower  than  the 
statutory  duties.  Those  on  pig-iron  and  tin-plate  also 
were  materially  lower.  These  were  commodities  in 
which  the  United  Kingdom  had  the  advantage  in  the 


ECONOMIC  ALLIANCES 


85 


Japanese  market  over  competing  countries.  Some  kinds 
of  paints  also  were  included  in  this  category. 

The  citation  of  some  of  the  items  with  the  treaty  and 
the  statutory  rates  illustrates  the  working  of  the  favored- 
nation  treatment.  In  a  few  instances  also  the  statutory 
rates  and  the  treaty  rates  were  identical.  This  was 
a  means  of  guaranteeing  England  against  an  increase 
in  the  specified  rates  by  any  general  tariff  legisla- 
tion.^ 

The  provisions  in  the  treaty  with  Germany  were  simi- 
lar to  those  in  that  with  England,  but  they  covered  prin- 


^  Tariff  Schedule 

100  kin  net  weight.     (100  kin  equal  133  pounds.) 
(1  yen  equals  50  cents.) 

Treaty 
Rates 
No.  Yen 

266    Paints,  6  kilos  or  less 4.25 

276    Linen  yarns: 

Single,    gray    8.60 

298    Cotton  tissues,  etc.,  weighing  not  more  than  5 

kilos,  gray,  19  threads  or  less 15.30 

35  threads  or  less   28.70 

43  threads  or  less   38.00 

More  than  43    51.30 

Weighing  more  than  5  kilos: 

19  threads  or  less   6.70 

35  threads  or  less    8.00 

43  threads  or  less    10.70 

More    than    43    13.30 

301     Woolens: 

Weighing  not  more  than  200  grammes  per 

square  meter 57.50 

Weighing  not  more  than  500  grammes 45.00 

462    Iron: 

Pig  iron 0.83 

Plates  and  sheets  not  coated 0.30 

Coated : 

Tinned    0.70 

Gralvanized 1.00 


Statutory 
Rates 
Yen 
6.40 

9.25 

23.00 
43.00 
57.00 
77.00 

11.00 
18.00 
22.00 
28.00 


70.00 
60.00 

1.00 
0.40 

0.90 
2.00 


;•*" 


86 


AMERICAN  FOREIGN  TRADE 


!  ^H 


cipally  the  products  in  which  Germany  was  strongest 
in  the  Japanese  market. 

The  United  States,  under  the  favored-nation  treat- 
ment, got  the  same  rates  that  England  and  Germany  did. 
But  the  United  States  exported  to  the  Japanese  market 
few  of  the  textiles,  particularly  cotton  goods,  which  Eng- 
land exported.  These  were  almost  a  Manchester  monop- 
oly. Moreover,  while  England  could  export  pig-iron 
with  comparatively  slight  land  t  ransportation  charges, 
because  of  the  nearness  of  her  blast-furnaces  to  seaports, 
the  United  States  would  have  heavy  charges  because  of 
the  long  haul  necessary  to  reach  seaboard.  Thus,  while 
the  Anglo-Japanese  Treaty  rates  were  not  to  the  spe- 
cific disadvantage  of  the  United  States,  and  in  that  sense 
did  not  follow  the  Methuen  practice,  they  observed  the 
Methuen  principle  of  securing  an  advantage  to  one  coun- 
try at  the  expense  of  another,  or  at  most  with  only  an  in- 
cidental advantage  to  it. 

The  application  of  the  favored-nation  treatment  in 
future  commercial  intercourse  is  surrounded  with  un- 
certainties. There  are,  in  the  first  place,  the  new  na- 
tions. They  will  have  economic  jjolicies  of  their  own,  or 
else  they  will  not  be  free  nations.  The  world  economic 
tendency  is  toward  nationalism.  Internationalism,  as 
a  theory  of  political  benevolence,  does  not  alter  this  tend- 
ency. Instead,  it  is  emphasized  by  the  policies  of  the 
great  powers. 

The  industrial  instinct  of  peoples  grouped  as  nations 
has  been  one  of  the  verities  of  history.  In  its  twentieth- 
century  developments  it  has  largely  partaken  of  the  na- 
ture of  industrialization,  sometimes  described  as  eco- 
nomic protectionism.  In  most  of  its  manifestations  it 
has  taken  the  form  of  protective  tariff,  often  accom- 


I    1 : ! 


ECONOMIC  ALLIANCES 


87 


panied  by  bounties  or  subsidies  to  stimulate  produc- 
tion. 

Statesmen  responsible  for  the  destinies  of  growing 
commonwealths  have  not  bothered  about  John  Stuart 
Mills's  justification  of  new  countries  violating  the  gen- 
eral principle  of  free  trade  and  employing  artificial' 
means  to  build  up  their  industries.  They  have  done  it 
simply  as  national  policy.  Some  of  them  have  not  even 
known  the  philosopher's  later  modification  of  his  views, 
and  the  preference  he  expressed  for  direct  bounties  in- 
stead of  protective  duties.  British  commonwealths  en- 
joying economic  autonomy  have  employed  both  methods. 
Canada  stimulated  her  iron  and  steel  industries  by  direct 
bounties  and  subsidies  as  well  as  by  protective  tariffs. 
Australia  fomented  her  agricultural  production  by  a 
premium  on  the  cultivation  of  rice,  tobacco,  cotton,  and 
coffee,  while  at  the  same  time  she  protected  these 
products  in  her  tariff. 

Older  countries  also  have  shown  the  force  of  the  indus- 
trial instinct.  Spain,  although  neglecting  the  possibili- 
ties of  developing  her  raw  resources  of  copper  and  iron 
ore,  established  textile  industries  by  means  of  a  high 
tariff.  The  thriving  city  of  Barcelona  is  the  justifica- 
tion of  this  policy,  regardless  of  its  conflict  with  the 
formula  of  the  classical  school  of  political  economists. 
Italy,  with  her  natural  resources  principally  agri- 
cultural, without  natural  fuel,  and  with  no  raw  copper, 
developed  textile  and  electrical  industries  that  gave  her 
a  world  market. 

The  genius  of  Sergius  de  Witte  gave  Russia  an  indus- 
trial life  that  was  most  promising.  It  centered  princi- 
pally in  the  textile  and  chemical  industries  of  Warsaw 
and  Lodz.    Poland  is  one  of  the  new  nations,  and  these 


!i  ii 


88 


AMERICAN  FOREIGN  TRADE 


industrial  centers  are  in  Poland.  The  industrial  instinct 
of  the  new  and  independent  Poland  is  likely  to  find  fur- 
ther expression.  Industrialization  is  apt  to  l)ecome  a 
cardinal  part  of  her  national  policy.  Her  new  national 
life  must  be  molded  to  her  own  circumstances. 
This  means  that  her  commercial  intercourse  must  be 
based  on  what  is  conceived  to  be  best  for  Poland  by  her 
people. 

Others  of  the  new  nations  are  principally  agricultural, 
and  the  development  of  economic  protectionism  may  not 
be  so  marked,  yet  inevitably  there  will  be  manifestations 
of  it.  All  these  countries  will  want  to  find  their  place 
in  world  commercial  intercourse.  The  point  of  great 
interest  to  them  is  their  status  with  favored  nations  and 
as  favored  nations. 

The  indications  are  clear  that  the  great  powers  will 
have  very  distinct  national  policies  of  their  own. 
Whether  this  will  take  the  form  of  conditional  instead  of 
unconditional  favored-nation  treatment  will  depend 
in  some  degree  on  the  action  of  two  or  three  commercial 
nations. 

The  most  powerful  figure  among  them  is  Great 
Britain,  and  Great  Britain  has  entered  on  a  new  era 
in  trade  and  industry.  Some  of  its  manufactures  are 
purely  domestic ;  more  extend  beyond  England's  borders. 
It  is  especially  not  as  England,  but  as  the  British  Em- 
pire, that  the  new  tendencies  are  to  be  considered.  Some 
colonial  statesmen  have  indicated  a  preference  for  the 
term  "commonwealth"  instead  of  "empire."  But  in 
trade  relations  it  is  in  reality  an  empire  that  is  formu- 
lating a  policy  and  that  must  be  dealt  with  by  other 
countries.     For  that  reason  the  term  is  retained.    The 


ECONOMIC  ALLIANCES 


89 


British  Empire  and  the  United  States  are  to-day  and  to- 
morrow the  two  great  world  powers  in  international 
trade.    The  British  Empire  receives  consideration  first. 


;  i ' : 


BRITISH  TRADE  POLICY 


91 


CHAPTER  VII 

BRITISH  TRADE  POLICY 

Edmund  Burke's  survey  of  England's  trade  two  centuriei  ago  — 
Before  and  after  the  Great  War  —  Imperial  preference  as  an  outcome 
—  From  Joseph  Chamberlain  to  Lloyd  George  —  Protectee  tariff  ten- 
dencies in  war  measures -The  Budget  of  1919 -The  self  governing 
colonies  —  India  and  the  dependencies  —  Tlie  world  view  -  Disguised 
or  straightforward  protection  ?  — Government  participation  in  finance 
and  commerce  —  British  trading  corporation  -  Direct  subsidies  —  Some 
national  traits  —  British  interests  the  key  to  British  policy. 

We  stand  where  we  have  an  immense  view  of  what  is  and 
what  is  past.  Let  ns,  before  we  descend  from  this  noble 
eminence,  reflect  that  this  growth  of  our  national  prosperity 
has  happened  within  the  short  period  of  the  life  of  man.  It 
has  happened  within  sixty-eight  years.  There  are  those  alive 
whose  memory  might  touch  the  two  extremities.  For  m- 
stance,  My  Lord  Bathurst  might  remember  all  the  stages  of 
the  progress.  He  was  in  1704  of  an  age  at  least  able  to 
comprehend  such  things. 

THE  speaker  was  Edmund  Burke;  the  place,  the 
House  of  Commons;  the  theme,  conciliation  with 
America.  The  courtly  eulogy  of  Lord  Bathurst 
was  the  preface  to  statistics  of  exports  as  they  appealed 
to  the  opulent  imagination  of  the  foremost  political 
philosopher  of  the  day.  The  purpose  was  to  show  the 
importance  to  England  of  keeping  the  commerce  of  the 
revolting  colonies,  which  was  in  reality  foreign  com- 

m.erce. 

The  succinct   story   of  commercial   progress,   as   it 
flashed  through  the  penetrating  mind  of  Burke,  was  that 

90 


in  the  opening  years  of  the  eighteenth  century,  when 
there  were  five  million  inhabitants,  the  whole  export 
trade  of  England  amounted  to  six  and  a  half  million 
pounds  sterling,  and  that  less  than  seventy-five  years 
later  the  commerce  with  the  American  colonies  alone  had 
amounted  to  this  sum. 

Export  commerce  of  the  United  Kingdom  in  1913, 
with  forty-five  million  inhabitants,  w^as  in  excess  of  five 
hundred  and  fifty  million  pounds  sterling  or  |2,700,000,- 
000.  The  span  of  three  Biblical  lives  embraces  the 
growth  of  exports  to  these  stately  statistics.  The  inter- 
val covers  England's  evolution  as  the  workshop,  the 
warehouse,  and  the  clearing-house  of  the  world.  The 
figures  visualize  the  impressive  drama  of  British  trade 
as  it  unfolded  in  little  more  than  two  centuries. 

The  Great  War  interrupted,  but  could  not  destroy, 
the  volume  of  this  trade.  Temporary  war  measures 
merged  into  permanent  policies  and  government  partici- 
pation in  industry,  finance  and  commerce  became  ac- 
cepted as  policy  in  the  future  trade  relations  of  the 
United  Kingdom.  The  most  important  result  is  im- 
perial preference,  propounded  in  peace  by  Joseph  Cham- 
berlain, and  accepted  in  war  by  Lloyd  George. 

A  resume  of  the  British  movements  to  get  away  from 
free  trade  is  desirable  in  order  to  appreciate  the  change. 
So  strongly  had  tradition  entrenched  itself  that  when 
they  began  their  agitation  late  in  the  nineties  the  English 
protectionists  found  it  essential  to  seek  the  thing  with- 
out the  name.  The  approaches  toward  protection  as  a 
national  policy  were  made  under  various  names  —  fair 
trade,  agricultural  aid,  fiscal  reform,  fiscal  necessity, 
and,  finally,  tariff  reform.  The  most  aggressive  agita- 
tion was  carried  on  under  the  latter  name. 


mu 


,''«:■ 


Ill 


92  AMERICAN  FOREIGN  TRADE 

An  American  protectionist,  keeping  in   mind   Mr. 
Blaine's  dictum  not  to  assume  that  protection,  is  in  all 
countries  and  in  all  circumstances  the  wisest  policy,  may 
examine  the  shifting  aspects  of  the  controversy  dispas- 
sionately.    The  most  virile  movement,  under  the  name  of 
tariff    reform,   was   instituted  by   the   radical   leader, 
Joseph  Chamberlain,  after  he  left  the  Liberal  party  and 
united  with  the  Tories  in  opposition  to  Home  Rule  for 
Ireland.     This  coalition  was  known  as  the  Unionist 
party.    The  effort  was  to  have  it  unite  on  tariff  reform 
as  a  political  issue  in  addition  to  irreconcilable  opposi- 
tion to  Home  Rule. 

In  the  rough,  the  program  as  first  promulgated  was 
not  to  tax  raw  material;  to  tax  foreign  manufactures 
both  for  revenue  and  in  order  to  protect  British  mani^ 
facturers  against  foreign  competition;  to  enact  a  tariff 
with  retaliatory  provisions  as  a  means  of  securing  fair 
treatment  from  countries  that  had  hostile  tariffs ;  to  keep 
British  capital  employed  in  industries  at  home  instead 
of  letting  it  go  abroad  to  be  paid  out  in  wages  to  foreign 
workmen;  to  tax  food  products,  and  to  strengthen  the 
political  ties  between  the  colonies  and  the  mother  coun- 
try by  preferential  schedules. 

''  Tariff  reformers,"  said  Joseph  Chamberlain  in  his 
London  speech  in  1904,  "  have  three  objects  in  view. 
We  hope  to  stimulate  the  industry  and  invention  of  this 
country  by  giving  it  greater  security.  We  believe  that 
it  is  the  duty  of  our  government  to  defend  the  commerce 
of  the  country  against  unfair  competition,  and  we  desire 
to  encourage  trade  within  the  Empire  and  strengthen 
and  unite  it  by  these  means." 

Joseph  Chamberlain  was  not  deeply  versed  in  eco- 
nomics.    His  program,  as  set  forth  in  his  speeches,  was 


BRITISH  TRADE  POLICY 


93 


crude,  and  he  frequently  contradicted  himself;  yet  he 
held  tenaciously  to  the  imperial  idea  politically,  and  to 
imperial  tariff  preference  a^  a  part  of  it.  With  his  usual 
boldness,  he  faced  the  main  issue  squarely  when  he  pro- 
nounced in  favor  of  taxing  food  products,  but  he  dis- 
played a  childlike  ingenuousness  when  he  assumed  that 
the  great  colonies,  such  as  Canada  and  Australia,  would 
halt  their  own  industries  by  refraining  from  protective 
duties  as  against  the  manufactures  of  the  United  King- 
dom.^ The  friendly  promptness  with  which  Canada  and 
Australia  corrected  this  error  caused  the  subsequent 
discussion  of  colonial  preference  to  be  conducted  with 
the  full  knowledge  that  the  preferential  rate  for  British 
manufactures  was  to  be  only  for  such  articles  as  would 
not  compete  seriously  with  the  products  of  colonial  in- 
dustry. The  purpose  of  the  colonies  was  in  reality  to 
secure  a  seat  at  the  council  table. 

Challenged  in  their  citadel,  the  free-traders  reaffirmed 
their  doctrine,  though  within  limited  range.  Free  trade 
was  no  longer  the  universal  principle,  the  economic  ver- 
ity for  all  the  world,  but  the  most  profitable  and,  there- 
fore, the  most  convenient  fiscal  policy  for  Great  Britain. 
"We  are  defending  it  [free  trade],''  said  Premier  As- 
quith  in  his  London  speech  in  1909,  "  on  the  platform 
and  in  the  House  of  Commons  on  the  ground  that  experi- 
ence has  shown  that  it  is  the  system  best  suited,  nay, 
that  it  is  the  only  system  suited  at  all,  to  the  actual  con- 

1  Mr.  Chamberlain,  in  a  speech  at  Glasgow  in  October,  1903,  proposed 
these  duties  on  foreign  products:  Wheat  and  flour,  two  shillings  per 
quarter  of  eight  bushels;  meat  and  dairy  produce,  five  per  cent,  ad  va- 
lorem. Maize  and  bacon  were  excluded  from  duties.  Remissions  were 
to  be  made  of  three  fourths  of  the  duty  on  tea,  one  half  that  on  sugar, 
and  one  half  that  on  coffee  and  cocoa.  Colonial  preference  was  to  be 
established  by  exemption  from  the  duties  imposed.  Preferential  treat- 
ment also  was  to  be  given  colonial  wines  and  fruits. 


m\ 


III  \\1 


94  AMERICAN  FOREIGN  TRADE 

dition  of  industrial  exigencies  and  practical  everyday 
necessities  of  British  trade."  The  free-traders  affirmed 
that  protection  and  preference  meant  dearer  food  and 
dearer  raw  material  and,  as  a  consequence,  increased 
restriction  of  production  and  commerce,  which  meant 
an  increase  of  the  number  of  unemployed. 

The  contest  raged  fiercely.  There  were  occasional 
broadsides  against  the  United  Stat(»8,  but  the  campaign 
was  directed  with  special  virulence  against  Germany. 
The  rallying  cry  was  to  destroy  German  competition  in 
the  British  market,  and  it  was  then  that  the  probability 
of  the  war  of  arms  as  well  as  a  war  of  trade  began  to 
dawn  on  the  people  of  the  United  Kingdom. 

The  movement  for  a  time  seemed  to  be  making  head- 
way.    Many  of  the  crudities  of  the  Chamberlain  plan 
were  pruned  away,  and  definite  legislation  on  a  pro- 
tective basis  was  outlined.     But  after  ten  years  agita 
tion  it  collapsed.     One  reason  was  the  inability  to  array 
all  the  Unionist  elements  in  support  of  the  scheme. 
Many  of  the  Conservatives  would  not  subordinate  their 
traditional  free-trade  principles  to  their  hatred  of  Home 
Rule,  and  thus  make  tariff  reform  the  principal  program 
of  the  Unionists.     Arthur  J.  Balfour,  the  dialectical 
leader  of  the  Unionists,  who  failed  to  accept  the  tariff 
policy  in  its  entirety,  was  pushed  aside,  and  Bonar  Law, 
a  robust  partizan,  supplanted  him;  but  this  did  not 
change  the  situation. 

The  principal  cause  of  the  failure  of  the  movement  was 
the  unwillingness  of  the  people  of  the  United  Kingdom 
to  pay  a  tax  on  food  products,  and  there  app(^ared  to 
be  no  possibility  of  laying  tariff  duties  and  carrying  out 
schemes  of  colonial  preference  without  taxing  wheat 
and  other  food  imports.     The  gro\Ning  Labor  party  was 


rM\ 


BRITISH  TRADE  POLICY  95 

implacably  hostile  to  such  a  proposition,  and  the  middle 
classes,    outside    the   manufacturers,    were   lukewarm. 
The  majestic  body  of  British  public  opinion  voiced  the 
conclusion  that  a  continuance  of  the  free-trade  system 
was  more  convenient  and  more  profitable  than  would  be 
the  change  to  a  protective  tariff.     In  the  midsummer  of' 
1914  it  might  fairly  be  said  that  protection  in  England 
was  a  dead  issue.     The  Unionists  for  ten  years  had  tried 
to  get  into  power  on  it,  and  had  failed.     The  trade  with 
Germany  in  1913  amounted  approximately  to  |400,000,- 
000  imports  and  to  $203,000,000  exports.^     The  British 
people  as  a  whole  seemed  satisfied  with  this  condition. 
More  disquieting  to  the  protectionists  was  the  limited 
production  of  pig-iron.     In  the  period  between  1894  and 
1908  the  average  annual  production  was  eight  million 
two  hundred  and  thirty-nine  thousand  tons  in  the  United 
Kingdom,  and  six  million  one  hundred  and  eighty-one 
thousand   tons   in   Germany.     In   1913   Germany  had 
trebled  this  average  production.     The  output  of  her 
blast-furnaces  was  nineteen  million  two  hundred  and 
ninety-two  thousand  tons ;  that  of  the  United  Kingdom 
was  only  ten  million  four  hundred  and  seventy-nine  thou- 
sand tons.     The  British  manufacturers  themselves  were 
blamed  for  the  slight  increase  in  British  production,  but 
their  retort  was  that  their  capital  was  more  beneficially 
employed  in  other  forms  of  industrial  production. 

The  Great  War  startled  England,  but  it  did  not  cause 
an  immediate  change  in  public  sentiment  concerning  the 
relative  merits  of  free  trade  and  protection  as  the  policy 
most  convenient  and  most  profitable  for  the  United 
Kingdom.     It  did,  however,  lead  gradually  to  the  in- 

1  British   Board  of  Trade   Statistics  for   1913,— Imports  from  Ger- 
many into  the  United  Kingdom,  £80,411,000;  exports,  £40,678,000. 


I.    I 


i 


R 


96 


AMERICAN  FOREIGN  TRADE 


dorsement  of  the  policy  of  imperial  preference.  The 
steps  were  progressive.  Parliament  directed  consulta- 
tion with  the  governments  of  the  dominions  in  order  to 
insure  the  economic  mobilization  of  the  Empire.  A 
royal  commission,  known  as  the  Balfour  Commission, 
because  its  chairman  was  Lord  Balfour  of  Burleigh,  was 
appointed.  It  reported  in  favor  of  discriminating  duties 
to  encourage  industry  and  trade  within  the  Empire. 

This  commission  agreed  on  the  general  proposition 
of  preferential  duties.     Some  of  its  members  qualified 
this  with  the  statement  that  they  were  not  abandcming 
their  free-trade  principles,  but  were  recognizing  an  ac- 
tual condition.     Following  this  report  the  Imperial  War 
Conference,  in  which  the  colonial  premiers  participated, 
resolved  in  1917  that  the  time  had  arrived  when  all 
possible  encouragement  should  be  given  to  the  develop- 
ment of  imperial  resources,  and  especially  to  making  the 
empire  independent  of  other  countries  in  respect  to  food 
supplies,  raw  materials,  and  essential  industries.    With 
these  objects  in  view  the  conference  expressed  itself  in 
favor  of  the  principle  that  each  part  of  the  empire,  hav- 
ing due  regard  to  the  interests  of  the  Allies,  should  give 
especially  favorable  treatment  and  facilities  to  the  pro- 
duce and  manufactures  of  other  parts  of  the  empire. 

This  recognition  of  the  principle  of  imperial  prefer- 
ence was  followed  by  more  definite  commitments  to  its 
practice  on  the  part  of  the  Government.  Not  all  parties 
or  political  groups  accepted  it,  but  it  manifestly  was 
acceptable  to  a  large  body  of  public  opinion.  The  reser- 
vations made  did  not  weaken  this  acceptance.  The 
popular  idea  was  that  under  imperial  preference  Great 
Britain  would  be  an  economic  unit  both  as  to  raw  ma- 
terials and  manufactured  products. 


BRITISH  TRADE  POLICY 


97 


The  vision  of  the  British  Empire  as  an  economic  unit 
kindles  the  imagination.  It  means  the  raw  resources  of 
Australia,  of  New  Zealand,  of  South  Africa,  of  India,  of 
Jamaica,  of  Canada,  and  of  the  countless  British  pos- 
sessions which  dot  the  seas  pouring  in  endless  stream 
into  the  mills  and  factories  of  the  United  Kingdom,  and 
the  manufactured  articles  pouring  out  for  the  consump- 
tion of  hundreds  of  millions  of  people  within  and  with- 
out the  British  domain.  But  this  has  been  the  process 
without  any  tariff  links  to  unite  the  scattered  units  of 
the  empire.  In  operation,  what  the  system  means  is  a 
wider  extension  and  closer  interweaving  of  the  colonial 
system  of  preferential  tariffs  with  the  English  tariff  and 
fiscal  system.  This  requires  that  some  complex  prob- 
lems of  adjustment  with  other  countries  of  the  world 
shall  be  solved.  Solution  of  these  problems  in  some 
degree  will  determine  whether  the  plan  is  more  beneficial 
to  the  United  Kingdom  than  free  trade  has  been.  The 
solving  of  them  will  interest  other  nations  fully  as  much 
as  Great  Britain  and  will  influence  their  policies. 

The  tariff  tendencies  were  shown  in  the  succession  of 
war-revenue  budgets.  They  increased  the  duties  on  the 
few  articles  such  as  tea,  tobacco,  and  coffee  on  which  a 
tariff  for  revenue  was  levied.  They  also,  for  the  first 
time,  placed  duties  on  manufactured  articles,  a  small  list 
at  first,  but  one  which  could  be  increased.  The  intention 
undoubtedly  was  to  decrease  the  excess  of  imports,  and 
to  establish  something  like  a  balance  of  trade ;  but  the  ef- 
fect was  a  large  measure  of  incidental  protection  to  Brit- 
ish manufactures.  This  effect  was  further  shown  in  the 
last  war  budget,  for  such  it  was,  although  it  was 
adopted  in  the  spring  of  1919.  By  this  time  the  program 
of  imperial  preference  was  being  worked  out.     Prefer- 


I 


ivf 


98 


AMERICAN  FOREIGN  TRADE 


I 


ence  was  extended  to  manufactured  articles  that  are  not 
manufactured  for  export  by  the  colonies.  The  effect,  of 
course,  was  to  give  the  British  manufactures  protective 
duties  on  these  articles. 

A  much  larger  degree  of  protection,  however,  was  ex- 
tended under  the  system  of  government  licenses.  For 
the  import  of  articles  from  the  United  States  the  list 
was  very  large.  The  purpose  was  the  sound  fiscal  one 
of  decreasing  imports  because  the  country  could  not  send 
the  gold  abroad  to  pay  for  them,  and  could  not  afford, 
economically  speaking,  to  establish  further  credits;  but 
there  was  the  definite  indication  that  the  system  was 
used  to  lay  the  foundation  for  discriminating  in  trade 
relations  and  for  giving  the  British  manufactures  a 
permanent  advantage  growing  out  of  a  temporary  con- 
dition. In  reference  to  the  colonies  the  discrimination 
was  open.  Print  paper  and  scores  of  articles  from  the 
United  States,  for  example,  were  refused  license,  while 
it  was  extended  to  Canadian  print  paper  and  the  other 
products. 

In  the  budget  of  1919  the  permanent  plan  for  dis- 
crimination in  tariff  was  foreshadowed.  Austin  Cham- 
berlain, the  chancellor  of  the  exchequer,  in  announcing 
the  budget  said  that  there  were  four  main  considerations. 
The  preference  should  be  substantial  in  amount.  The 
rates  should,  as  far  as  possible,  be  few  and  simple. 
Where  there  was  an  existing  excise  duty  corresponding 
to  customs  duty,  the  excise  must  be  proportionately  ade- 
quate, so  there  should  be  no  preference  at  the  expense  of 
the  home  producer.  So  far  as  practicable  increasing 
duties  on  the  products  of  the  Allies  for  the  purpose  of 
imperial  preference  was  to  be  avoided.  This  policy  in 
practice  worked  out  by  keeping  the  existing  duties  on 


BRITISH  TRADE  POLICY 


99 


their  products  unchanged,  and  reducing  the  duties  on 
similar  products  when  coming  from  British  colonies  and 
possessions. 

Unfriendly  critics  pointed  out  that  Canada,  Australia, 
and  South  Africa  could  derive  little  benefit  from  prefer- 
ential duties  on  clocks,  watches,  cinema  films,  motor- 
cars, or  musical  instruments,  since  they  did  not  manu- 
facture these  articles  for  export.  If  they  did,  this  would 
bring  them  into  stronger  competition  with  the  British 
manufacturers  of  similar  commodities.  The  real  pur- 
pose of  these  duties  was  declared  to  be  to  protect  the 
home  manufacturers,  and  the  question  was  how  far  the 
list  would  be  extended  from  time  to  time.  The  prefer- 
ential rates  also  applied  to  colonial  wines,  sugars,  tea, 
cocoa,  and  coffee. 

Some  general  considerations  may  be  briefly  suggested. 
One  of  these  is  how  far  the  preferential  policies  shall  be 
applied  to  the  dependencies  as  well  as  to  the  self-govern- 
ing colonies  which  in  all  their  tariff  preferences  fully 
protect  their  own  manufactures  as  against  the  manufac- 
tures of  England.  The  preference  is  simply  to  goods 
from  the  United  Kingdom  over  goods  from  other  coun- 
tries. 

India  is  likely  to  be  a  test-point.  For  many  years 
the  Indian  Government  sought  to  establish  protective 
duties  on  certain  classes  of  cotton  goods.  Whether  the 
Liberals  or  the  Conservatives  were  in  power,  the  Home 
Government  always  defeated  these  attempts.  The  most 
that  was  allowed  was  the  duty  on  imported  cotton  goods 
of  three  and  a  half  per  cent  with  a  countervailing  excise 
of  the  same  amount.  The  stern  economic  moralists  of 
the  Manchester  School  insisted  that  India  did  not  know 
what  was  good  for  itself  in  seeking  to  establish  pro- 


i 


100 


AMERICAN  FOREIGN  TRADE 


;i      .' 


Vj 


tective  duties.  But  they  knew  what  was  good  for  Man- 
chester. This  discrimination  was  not  swept  away,  al- 
though, during  the  war  India  advanced  a  substantial 
loan  to  the  Home  Government,  and  the  increase  of  the 
duties  on  cotton  goods  was  acquiesced  in,  notwithstand- 
ing there  were  strong  protests  against  it.  The  future 
adjustment  of  this  question  will  in  some  measure  be  a 
test  of  preference  within  the  empire. 

The  world  at  large  is  not  deeply  concerned  with  these 
questions  of  adjustment  within  the  empire  except  as  they 
affect  nations  outside  the  empire.  Lloyd  George  de- 
clared that  imperial  preference  was  to  be  made  effective 
without  increasing  the  cost  of  food.  This  would  mean 
that  there  would  be  no  effort  to  give  the  wheat  of  Canada 
and  Australia  a  preference  over  the  wheat  of  the  United 
States  and  the  Argentine  Republic.  It  would  avoid  the 
possibilities  of  complications  with  those  two  countries. 
But  it  would  disappoint  the  grain-raising  colonies. 

Control  of  raw  materials  through  colonial  export 
duties  is  one  of  the  reserve  factors  of  imperial  prefer- 
ence. It  has  been  employed  effectively  in  the  past.  It 
is  one  of  the  points  in  the  program  of  the  economic  sub- 
jection of  Germany  by  denying  raw  materials.  But  it 
may  be  employed  against  friendly  nations  without  un- 
friendly political  intent,  and  with  the  open  purpose  of 
promoting  British  industries.  The  prevention  of  an 
American  smelting  industry  for  tin  has  been  noted. 
By  laying  an  export  duty  on  tin  for  countries  outside 
the  United  Kingdom  it  was  possible  to  defer  the  realiza- 
tion of  this  enterprise  until  tin  could  be  secured  from 
another  quarter  of  the  world. 

During  the  war  recourse  was  had  to  the  potency  of 
export  duties  in  several  instances.    The  Malay  states, 


BRITISH  TRADE  POLICY 


101 


which  are  not  self-governing,  again  afforded  the  example. 
An  export  duty  on  tin-ore  was  adopted,  effective  from 
January  1, 1917,  by  which  ore  exported  under  guaranties 
that  it  should  be  smelted  in  the  Straits  Settlement,  Aus- 
tralia, or  the  United  Kingdom  bore  a  duty  of  seventy- 
two  per  cent,  of  the  duty  on  tin ;  while  ore  exported  for 
smelting  elsewhere  bore  the  same  duty,  plus  an  addi- 
tional thirty  dollars  per  picul.  Previously  the  export 
duty  had  been  seventy  per  cent.,  with  the  same  discrimi- 
nation. The  action  taken,  therefore,  might  be  inter- 
preted as  a  permanent  policy. 

Palm-oil,  which  is  as  necessary  for  making  tin-plate  as 
it  is  useful  in  making  soaps,  was  also  made  the  subject 
of  export  duties  from  British  West  African  possessions. 

No  positive  judgment  can  be  pronounced  on  imperial 
preference  in  its  initial  stages.  Manifestly,  however, 
the  British  statesmen  who  seek  to  put  it  into  effect  desire 
to  keep  the  question  of  tariff  duties  in  the  background. 
Disguised  or  indirect  protection  is  more  to  their  liking. 
When  the  tariff  reform  movement  was  at  its  height,  the 
Liberal  government  offered  various  measures  as  an  off- 
set. These  included  modifications  of  the  Trademark 
Acts.  The  Patents  Act  was  Lloyd  George's  specific  in 
1906  for  giving  employment  to  British  labor  and  off- 
setting the  argument  of  the  protectionists  that  free  trade 
was  responsible  for  unemployment.  Under  the  Patents 
Act  foreigners  who  took  out  patents  were  compelled  to 
do  a  certain  amount  of  manufacturing  in  the  United 
Kingdom.  This  resulted  in  the  setting  up  of  many 
American  branch  establishments  in  England. 

During  and  following  the  war  the  tendency  has  been 
very  marked  to  formulate  a  policy  of  nationalistic  fiscal- 
ism  by  the  regulation  of  export  railroad  rates,  by  the 


f! 


rf^ 


It 


L'li:li 


^ 


I  >;  ^ 


102 


AMERICAN  FOREIGN  TRADE 


licensing  of  investment  of  capital  in  constructive  enter- 
prises so  as  to  exclude  foreign  participation,  and  by 
controlling  exchange.  The  colonies  come  within  the 
beneficial  scope  of  these  plans.  Some  of  the  advocates 
of  these  measures,  while  characterizing  them  as  a  chap- 
ter in  the  program  of  imperial  preference,  are  also  bold 
enough  to  describe  them  as  the  new  protection,  or  as  eco- 
nomic protection,  notwithstanding  the  German  origin  of 
the  latter  term.  It  is  another  phase  of  the  tendency  to 
keep  tariff  schedules  in  the  background,  and  thus  avoid 
antagonizing  free-trade  traditions. 

The  world  view  is  not  likely  to  be  so  circumspect.  It 
recognizes  that  imperial  preference  means  tra<le  im- 
perialism on  the  part  of  the  British  Empire.  Commer- 
cial nations  realize  that  they  must  take  measures  to 
adjust  themselves  to  the  new  British  policy.  Some  of 
these  may  require  that  they  suffer  inconvenience. 
Others  are  likely  to  be  definite  measures  to  prevent  dis- 
criminations, and  to  insure  equality  of  treatment  for 
their  products  in  British  markets  whether  colonial  or  in 
the  United  Kingdom.  They  would  prefer,  however,  that 
British  statesmen  meet  the  situation  squarely,  and  ac- 
knowledge that  straightforward  protection  is  a  i)art  of 
the  future  policy  of  the  empire  and  is  not  confined  to 
tariffs. 

The  direct  participation  of  the  British  Government 
in  commercial  and  industrial  enterprises  in  its  first 
manifestation  had  no  relation  to  world  trade.  It  was 
a  war  measure,  but  its  effects  were  not  temporary.  The 
chemical  and  dye  industries  received  direct  government 
financial  aid.  The  purpose  was  to  establish  the  key 
industry,  essential  to  munitions-making.  A  broader  ob- 
ject was  to  make  England  forever  free  from  the  control 


!f 


BRITISH  TRADE  POLICY 


103 


which  Germany  previously  had  held  of  chemicals  and 
dyes.  The  British  chemical  and  dye  industry  may,  by  a 
process  of  transition,  become  a  purely  private  enterprise ; 
but  as  such  it  will  continue  to  have  the  fostering  care  of 
the  Government  either  by  protective  duties  or  by  other 
forms  of  protection. 

The  general  policy  of  the  British  Government  at  the 
outset  of  the  war  was  to  preserve  the  export  trade.  The 
revenue  and  fiscal  and  other  measures,  including  the 
broad  powers  exercised  under  the  Defense  of  the  Realm 
Act,  were  all  bent  to  this  purpose.  Exports  were  too 
valuable  an  asset  to  the  British  Empire  to  be  en- 
dangered. The  most  careful  solicitude  was  shown. 
Many  patriotic  Britons  abroad  who  were  anxious  to 
come  home  to  fight  were  made  to  understand,  reluctantly 
on  their  part,  that  they  could  be  of  more  service  in  con- 
tinuing as  traders.  The  solicitude  to  preserve  British 
industries  abroad  extended  to  every  detail.  Nitrate 
plants  in  Chile,  a  neutral  country,  which  suffered  few 
of  the  war  hardships  in  the  way  of  restricted  food  and 
other  supplies,  found  themselves  stocked  with  whole 
wheat  flour  at  a  time  when  the  English  people  at  home, 
and  the  people  in  the  United  States  who  were  supplying 
the  wheat,  had  to  be  content  with  war  bread.  In  the 
later  and  most  desperate  stage  this  policy  was  relaxed 
somewhat,  so  as  to  concentrate  every  economic  resource 
on  winning  the  war.  But  the  trade  prospects  after  the 
war  were  never  lost  sight  of.  The  Ministry  of  Recon- 
struction, with  its  multiplicity  of  commissions,  per- 
formed a  vast  service  to  Great  Britain  in  its  adaptation 
of  the  needs  of  the  future. 

Measures  for  nationalizing  the  organization  of  com- 
merce and  industry  adopted  during  the  war  have  a  per- 


."  ■> 


104 


AMEEICAN  FOREIGN  TRADE 


■'I'-, 
f 


i 


manent  influence  on  British  trade  policy.  The  principle 
adopted  in  some  cases  was  that  of  subsidizing  companies 
to  promote  British  interests  abroad.  The  immediate 
purpose  was  to  offset  Germany  in  the  war,  but  it  was 
not  intended  that  the  policy  entered  upon  should  be 
concluded  with  the  ending  of  the  war.  The  Biitish 
Trading  Corporation  was  the  most  striking  instance  of 
this  policy.  Originally  it  was  called  the  British  Trade 
Bank,  and  was  intended  to  supplement  the  already  .nmple 
facilities  of  London  finance  for  handling  international 
transactions  and  promoting  British  commerce  abroad. 
The  formation  of  this  financial  institution  was  recom- 
mended and  instituted  by  the  Board  of  Trade,  which  is  a 
department  of  the  British  Government  corresponding  to 
the  Department  of  Commerce  in  the  United  Stat<^. 

The  substance  of  the  original  proposition  was  that  a 
trade  bank  with  a  capital  of  ten  million  pounds  sterling, 
part  of  which  should  be  contributed  by  the  Government, 
should  be  formed  for  the  specific  purpose  of  financing 
enterprises  engaged  in  foreign  trade  or  in  providing 
facilities  for  commerce.  The  Board  of  Trade  plan  was 
set  forth  in  detail,  and  was  subsequently  broadened. 
There  was  some  adverse  comment  in  Parliament,  and  the 
fear  of  competition  hurtful  to  existing  institutions  was 
also  voiced ;  but  the  promise  that  the  corporation  should 
be  conducted  on  lines  to  aid  British  trade  and  industry 
in  foreign  fields  was  suflacient  to  overcome  the  objections. 
The  British  Trading  Corporation  is  to-day  the  living  evi- 
dence of  England's  determination  to  employ  the  Govern- 
ment as  a  means  of  extending  England's  foreign  trade. 

Another  example  of  the  new  policy  was  that  of  the 
British-Italian  Corporation.  This  was  formed  by  the 
London  banks  with  a  subscribed  capital  of  one  million 


BRITISH  TRADE  POLICY 


105 


pounds  sterling,  but  the  Government  covenanted  to  con- 
tribute fifty  thousand  pounds  sterling  annually  to  the 
company  by  way  of  subsidy  during  each  of  the  first  ten 
years  after  its  incorporation.  A  company  also  was 
formed  in  Italy,  known  as  the  Italian-British  corpora- 
tion, with  a  capital  of  four  hundred  thousand  pounds 
sterling,  one  half  of  which  was  taken  by  the  British  cor- 
poration, and  one  half  by  the  Italian  corporation.  The 
corporations  were  provided  with  interlocking  director- 
ates. There  was  a  war  purpose  in  the  aid  which  the 
British  Government  gave  this  enterprise,  since  it  was 
the  desire  to  undermine  the  financial  and  industrial 
foothold  that  Germany  had  gained  in  Italy.  But  the 
government  participation  was  not  withdrawn  after  the 
armistice  was  signed.  The  Anglo-Italian  corporation  is 
in  all  essentials  an  after-the-war  enterprise  in  which  the 
British  Government  participates  with  a  view  to  aiding 
British  industry  abroad. 

The  similarity  of  these  two  institutions  to  German 
institutions  will  be  noted  by  the  observer.  They  are  the 
frank  confession  that  England,  in  her  foreign  trade 
policy,  has  accepted  the  German  system.  Many  other 
instances  may  be  found  in  the  various  measures  of  gov- 
ernment participation  and  control  of  finance,  industry, 
and  commerce.^ 

Trade  intelligence  has  not  been  in  the  past  one  of  the 
strong  points  in  British  foreign  commerce.  The  British 
Consular  Reports  were  cast  in  a  mold  many  years  ago, 
and  the  mold  was  broken.  These  reports  formed  a  body 
of  solid  trade  literature.    One  always  knew  what  to 

1  These  subjects  are  covered  in  their  fuU  detail  in  the  extensive  series 
of  White  Papers  issued  by  the  British  Government.  The  files  of  the 
Board  of  Trade  Journal  may  be  consulted  for  a  contemporary  account 
of  the  numerous  measures  adopted. 


I 


k 


106 


AMERICAN  FOREIGN  TRADE 


'  t^ 


find  and  where  to  find  it.  In  whatever  part  of  the  world 
reports  were  made,  the  general  trend  was  the  same  with 
trade  statistics  of  the  latest  period  replacing  the  statis- 
tics of  a  previous  period.  Useful  as  the  information 
was,  it  did  not  meet  changing  conditions.  Before  the 
war  the  British  consuls  were  frequently  criticized  for 
their  lack  of  enterprise.  Unfavorable  comparisons  were 
made  with  the  work  of  American  consuls.  Some 
changes  had  been  attempted  by  the  Foreign  Intelligence 
Bureau,  but  the  unscalable  wall  of  tradition  was  run 
against.  The  changes  made  in  the  system  following  the 
war  quickened  appreciation  of  what  is  news  in  regard 
to  world  trade  on  the  part  of  the  British  consular  repre- 
sentatives. 

Temperament  in  trade  —  that  is,  in  international 
commerce  —  performs  a  valuable  function,  just  as  it 
does  in  salesmanship.  In  this  respect  it  cannot  be  said 
that  the  Briton  is  lacking.  An  American  colloquial 
phrase  describes  him.  Foreign  trade  "  comes  natural  " 
to  him,  but  it  comes  natural  only  through  inheritance. 
Generation  after  generation  of  young  Britishers  sent 
abroad  have  come  to  know  almost  instinctively  how  to 
build  up  business  for  their  country.  They  also  have  got 
in  the  habit  of  regarding  foreign  markets  as  theirs  by  a 
sort  of  divine  right.  This  frequently  makes  the  indi- 
vidual Briton  arrogant  and  offensive,  but  it  makes  the 
British  merchants  as  a  body  very  powerful  in  any  foreign 
country.  It  comes  natural  for  them  to  act  togc^ther. 
Their  solidarity  is  reflected  at  home,  and  contributes 
very  greatly  to  influence  British  foreign  policy. 

There  is  also  the  direct  influence  of  the  British  busi- 
ness man  or  returned  merchant  who,  after  a  valuable 
experience  in  foreign  countries,  has  returned  to  England. 


BRITISH  TRADE  POLICY 


107 


His  familiarity  with  the  needs  of  British  trade  abroad 
makes  him  a  valuable  adviser.  The  belief  he  imbibed 
as  a  young  man  in  his  foreign  environment  that  foreign 
trade  belongs  by  a  sort  of  divine  right  to  England  makes 
him  an  unconscious,  but  aggressive,  partizan.  His  in- 
fluence frequently  extends  to  more  direct  participation 
in  public  affairs.  Not  infrequently  his  contributions  to 
his  party,  or  other  political  services,  have  secured  him 
a  knighthood,  a  baronetcy,  or  even  a  peerage.  From  this 
elevated  attitude  he  exercises  a  greater  influence  than 
he  could  as  a  mere  commoner. 

The  nationalization  projects  are  to  be  reviewed  prin- 
cipally in  relation  to  what  comes  after.  Nationalizing 
the  munitions  factories  was  purely  a  military  measure 
and  of  a  temporary  character.  The  virtual  nationaliza- 
tion of  the  railways  was  entirely  different.  It  was  done 
over-night,  the  day  following  the  declaration  of  war. 
Laws  passed  in  previous  years  had  provided  that  the  rail- 
ways should  come  under  government  control  as  soon  as 
war  should  be  declared.  The  stockholders  were  com- 
pletely eliminated  from  any  voice  in  the  management  of 
their  property.  The  Government  operated  the  lines  pri- 
marily with  a  view  to  military  necessities,  but  there  was 
no  dislocation  of  the  normal  relation  of  transportation  to 
production  and  consumption.  The  operation  of  forty 
thousand  miles  of  railway  was  not  in  itself  a  difficult 
matter.  The  policy  of  nationalizing  the  railways  per- 
manently opens  many  interesting  problems,  but  it  may 
be  assumed  that  under  government  ownership  and  op- 
eration there  would  be  a  special  regard  for  the  effect  of 
railway  rates  on  overseas  trade. 

Government  control  of  shipping  lines  is  not  so  simple 
as  the  operation  of  land  lines.     The  nationalization  in 


\\i 


!. 


108 


AMERICAN  FOREIGN  TRADE 


this  case  hardly  would  be  so  complete.  It  would  take 
the  form  of  government  direction  with  a  view  to  intra- 
and  inter-steamship  operation  rather  than  of  complete 
ownership. 

The  proposed  nationalization  of  the  mines  is  a  much 
more  serious  question.  They  are  the  basis  of  England's 
iron  and  steel  industry,  and  the  iron  and  steel  industry 
is  the  foundation  of  the  foreign  trade  of  the  United  King- 
dom. The  difficulty  here  is  an  economic  one.  There 
is  a  limit  to  w^ages  that  can  be  paid  in  mines  as  in  other 
industries.  Too  high  wages,  whether  in  the  form  of 
money  payments  or  of  reduced  working  hours,  may 
make  production  too  costly. 

Conservative  British  capitalists  and  industrial  lead- 
ers, representatives  of  the  old  regime  in  finance  and 
trade,  have  looked  somewhat  askance  at  direct  participa- 
tion of  the  Government  in  trade  and  industry.  To  their 
minds  the  policy  is  fraught  with  danger.  England 
during  the  centuries  having  established  her  commercial 
supremacy  through  private  enterprise,  and  the  danger 
of  Germany  disputing  that  supremacy  being  removed, 
they  see  no  need  of  changing  the  old  order.  But  these 
objectors  are  in  the  minority.  Nor  is  the  change  so 
great  as  it  appears  to  them.  At  least  this  is  true  in  so  far 
as  relates  to  foreign  trade.  It  is  one  of  form  rather  than 
of  substance,  a  change  from  a  passive  to  an  active  atti- 
tude, but  in  no  way  affecting  the  paternal  concern  of  the 
Government  in  the  trade  of  British  subjects. 

In  the  past  the  British  Government  almost  auto- 
matically reflected  the  will  of  British  business  interests 
throughout  the  world.  They  were  so  widely  extended 
and  so  potent  that  its  protection  and  extension  often  was 
carried  out  without  conscious  motive.    The  colossal 


BRITISH  TRADE  POLICY  109 

British  capital  invested  abroad,  which  formed  the  out- 
let for  British  industry  made  known  its  will,  and  the 
Government  responded.  In  the  future,  instead  of  the 
Government  being  the  agent,  it  becomes  the  principal. 
It  initiates,  and  trade  and  industry  become  its  instru- 
ments. But  always  and  everywhere,  and  in  whatever 
degree  imperial  preference  may  be  made  effective,  Brit- 
ish interests  will  be  the  key  to  British  policy. 


'It 


l!  I 


CHAPTER  VIII 

AMERICAN  TRADE  POLICY 

Historic  background  —  Commercial  character  of  early  diplomacy  — 
Treaties  after  the  Civil  War  — Blaine  reciprocity  conventions  —  Ding- 
ley  Bill  provisions  —  Cuban  reciprocity  treaty  —  Canadian  reciprocity 
agreement  — Adoption  of  double  tariff  system  —  Maximum  and  mini- 
mum experiment  — Repeal  by  Underwood  Act —  Review  of  favored  na- 
tion practice  —  Reasons  for  conditional  interpretation  by  United  States 
—  Diplomatic  correspondence  —  Cuba  and  other  exceptions  —  Conclud- 
ing resum^. 

AMERICAN  commercial  policy  on  its  foreign 
side,  though  vaguely  defined,  is  distinctly  na- 
tionalistic. Viewed  in  retrospect,  this  is 
clearly  seen.  The  prospect  may  be  gathered  from  it. 
The  interests  of  the  people  of  the  country  have  been 
treated  as  paramount,  but  without  prejudice  to  friendly 
intercourse  with  other  peoples  and  recognition  of  the 
special  economic  circumstances  of  other  countries.  Def- 
inite affirmation  is  one  of  the  essentials  of  the  position 
of  the  United  States  as  a  world  power  in  the  new  era 
of  international  commerce. 

The  historic  background,  from  the  time  when  Thomas 
Jefferson  urged  reciprocity  as  the  true  principle  of 
commerce,  affords  suggestion.  Theodore  Lyman,  an 
acute  contemporary  observer  of  American  diplomacy 
during  the  first  half -century  of  the  national  existence  of 
the  United  States,  asserted  that  the  War  of  the  Revo- 
lution was  in  itself,  in  principle,  a  commercial  one.  He 
remarked : 

110 


AMERICAN  TRADE  POLICY 


111 


We  were  not  concerned  with  the  dynastic  questions  and 
boundaries,  and  political  balances  of  power  that  entered  into 
the  diplomatic  relations  of  the  European  countries.  The 
people,  with  as  little  capital  as  credit,  immediately  entered 
upon  a  course  of  commerce.  .  .  .  The  political  relations  of 
the  United  States  with  Europe  became  at  once  minute  and  ex- 
tensive because  the  commerce  of  the  country  was  so.  On 
that  account  our  diplomacy  may  be  termed  altogether  of  a 
commercial  character;  at  least  its  legitimate  origin  being  in 
commerce,  our  treaties,  for  the  most  part,  have  consisted  of 
arrangements  for  the  regulation  of  trade  and  navigation.^ 

"The  best  book  on  political  economy  in  that  new 
country,"  wrote  Friedrich  List  later,  "  is  the  volume  of 
life."  The  Tubingen  professor  of  political  economy 
drew  his  conclusions  from  personal  experience.  As  a 
Pennsylvania  farmer  and  publisher,  as  a  coal-mine  oper- 
ator and  pioneer  railway-builder,  he  absorbed  the  idea  of 
nationality  in  trade  and  industry,  and  returned  to  Ger- 
many to  write  the  work  which  laid  the  foundation  for 
the  German  system  of  protection  as  developed  by  Bis- 
marck. 

The  book  of  life,  as  it  unfolded,  became  so  distinctly 
a  volume  of  internal  development  that  gradually  inter- 
national commerce  as  a  chapter  of  national  growth  was 
obscured.  In  the  decade  before  the  Civil  War  the  one 
important  international  trade  arrangement  was  the  Ca- 
nadian reciprocity  convention  of  1854,  known  as  the 
Elgin-Marcy  Treaty.  This  was  both  a  diplomatic  and 
a  commercial  agreement  between  neighbors.  It  pro- 
vided for  the  reciprocal  privileges  of  fishing  in  the  terri- 
torial waters  of  each  country,  and  for  the  use  of  rivers 
and  canals  on  equal  terms  as  well  as  for  the  interchange 

1" Diplomacy  of  thte  United  States,"  by  Theodore  Lyman:  Boston, 
1827. 


I 


112 


AMERICAN  FOREIGN  TRADE 


of  commodities.  In  the  commercial  sense  Canada  was 
the  gainer  since  her  natural  products  found  a  better 
market  in  the  United  States  than  the  similar  products 
of  the  United  States  gained  in  Canada,  and  there  was  no 
provision  for  the  exchange  of  manufactured  articles. 

Systematic  attempts  to  expand  the  foreign  market  by 
means  of  trade  treaties  came  after  the  Civil  War.  In 
some  instances,  as  in  the  Hawaiian  Reciprocity  Treaty 
of  1875,  the  motive  was  a  political  one.  The  motive  also 
had  been  political,  or  national,  in  the  unratified  treaty 
negotiated  by  Secretary  Marcy  in  1855.  In  the  treaty  of 
1875  one  purpose  was  to  hold  the  Pacific  outposts.  Aus- 
tralia, as  an  integral  part  of  the  British  Empire,  was 
the  country  then  feared  to  be  planning  annexation,  not 
Japan.  Propinquity  and  other  considerations  were 
mentioned,  as  well  as  the  free  admission  of  Hawaiian 
sugar  into  the  United  States  in  return  for  commercial 
concessions  which  were  not  of  equal  value. 

The  treaty  which  was  negotiated  by  General  Grant 
with  Mexico  in  1883  had  as  much  a  political  as  a  com- 
mercial purpose.  After  ratification  by  the  Senate,  it 
was  left  ineffective  through  the  refusal  of  the  House  of 
Representatives  to  pass  the  necessary  enabling  legisla- 
tion. The  treaty  negotiated  with  Spain  during  Presi 
dent  Arthur^s  administration  also  had  a  political  as 
well  as  a  commercial  object.  It  related  principally  to 
the  markets  of  Cuba,  in  which  profitable  concessions 
were  granted  on  flour  and  other  American  products.  It 
was  withdrawn  by  President  Cleveland  before  the  Senate 
could  act  on  it. 

The  reciprocity  treaties  negotiated  in  1890  were  the 
direct  outgrowth  of  Mr.  Blaine's  demand  that  the  Mc- 
Kinley  Tariff  bill  should  afford  the  opportunity  for  en- 


AMERICAN  TRADE  POLICY  113 

larging  the  market  of  the  United  States  in  the  Ibero- 
Amencan  countries  in  furtherance  of  the  Pan-American 
policy  of  which  he  was  the  prophet  and  protagonist.  As 
secretary  of  state  under  President  Harrison,  Mr.  Blaine 
was  unwilling  to  let  slip  the  opportunity  for  the  practi- 
cal application  of  his  policy.  His  spectacular  denunci- 
ation of  the  bill  while  it  was  in  process  of  making,  as 
not  extending  the  market  for  a  single  barrel  of  pork  or 
a  bushel  of  wheat,  caused  a  party  majority  to  change  the 
text  and  provide  for  limited  reciprocity,  on  the  basis 
of  insuring  some  concessions  for  the  products  of  the 
United  States  in  return  for  the  free  admission  of  raw 
sugar,  molasses,  hides  and  skins,  coffee  and  tea.^ 

Reciprocal  arrangements  were  negotiated  by  John  W 
Foster  as  special  commissioner  with  Brazil  and  other 
South-American  and  Central-American  countries,  with 
the  British  and  Spanish  West  Indies,  and  with  Santo 
Domingo.  Germany  and  Austria-Hungary  also  con- 
eluded  conventions  with  the  purpose  of  insuring  the 
market  of  the  United  States  for  their  beet  sugar.  These 
treaties  were  nullified  by  the  operation  of  the  Wilson 
Tariff  Act  of  1894. 

The  act  of  1897,  known  as  the  Dingley  Tariff  con- 
tained a  remedy  for  the  high  duties  it  carried  by  pro- 
viding for  reductions  through  international  reciprocity 
The  reciprocity  provisions  were  contained  in  two  sec- 
tions.2  One  section  authorized  the  Executive  to  reduce 
the  duties  on  argols,  or  crude  tartars,  champagne  and 
high-grade  spirits,  paintings  and  statuary,  in  return  for 
equivalent  concessions  of  the  products  of  the  United 
States.     Under  it  limited  commercial  arrangements  with 

2  ^!!  f PP^''^?^  f^'    Reciprocity  Provisions  of  Tariff  Laws. 
2  See  Appendix  A.  ^^wb. 


114 


AMERICAN  FOREIGN  TRADE 


AMERICAN  TRADE  POLICY 


115 


several  European  countries  were  put  into  effect.  A 
clause  authorizing  the  President  to  impose  duties  on 
coffee  and  tea  with  the  purpose  of  obtaining  concessions 
for  the  products  of  the  United  States  was  not  utilized ; 
but  a  number  of  countries  were  brought  within  the 
broader  section  of  the  law  under  which  additional  ar- 
ticles could  be  given  a  reduction  of  twenty  per  cent, 
from  the  specified  rates  of  the  Dingley  Act,  or  be  trans- 
ferred from  the  dutiable  to  the  free  list.  Reciprocal 
arrangements,  negotiated  under  this  section,  required  to 
be  ratified  by  the  Senate  and  approved  by  Congress. 

John  A.  Kasson,  an  experienced  legislator  and 
diplomat,  acting  as  the  representative  of  the  adminis- 
tration, negotiated  a  series  of  treaties  under  this 
section,  as  well  as  under  the  argol  section.  The  coun- 
tries making  the  agreements  included  several  of  the 
British  possessions  in  the  West  Indies  and  Central- 
American  Republic.  The  most  important  of  the  con- 
ventions were  those  negotiated  with  France  and  with  the 
Argentine  Republic.  The  latter  was  known  as  the 
Buchanan  Treaty,  taking  the  name  of  the  minister  who 
represented  the  United  States  at  Buenos  Aires. 

President  McKinley's  unavailing  efforts  to  secure  the 
ratification  of  these  treaties  is  a  comparatively  recent 
chapter  in  American  trade  policy.  They  were  unac^cept- 
able  to  the  party  majority  in  Congress,  and  particularly 
in  the  Senate,  because  they  covered  some  competitive 
products.  With  their  failure  the  attempt  to  moderate 
the  high  duties  of  the  Dingley  Tariff  Law  by  means  of 
reciprocity  treaties  ended. 

The  reciprocity  treaty  with  Cuba  stands  by  itself.  It 
had  a  political  as  well  as  a  commercial  motive.  It  was 
negotiated  by  President  Roosevelt's  direction  in  1902, 


when  Cuba  was  just  entering  on  the  experiment  of  pro- 
tected independence  under  the  shield  of  the  United 
States.  There  were  statesmen  in  Washington  who 
recognized  how  greatly  political  stability  and  progress 
in  self-government  in  the  island  depended  on  economic 
causes.  Sugar  is  the  dominating  economic  factor  in 
Cuba.  The  treaty  therefore  provided  for  a  uniform  re- 
duction of  twenty  per  cent,  in  the  duties  on  Cuban  sugar 
and  molasses  imported  into  the  United  States,  as  also 
on  tobacco  and  fruits  and  the  products  of  the  soil  or  in- 
dustry. In  return,  products  of  the  United  States  were 
given  reductions  in  duty  ranging  from  twenty  to  forty 
per  cent.  Entirely  aside  from  its  political  character, 
the  Cuban  Reciprocity  Treaty  was  a  fair  commercial 
bargain.  The  reduction  in  duties  on  articles  imported 
into  Cuba  from  the  United  States  was  a  genuine  equiva- 
lent for  the  reduced  duty  on  Cuban  sugar  and  tobacco  in 
the  United  States. 

The  Canadian  Reciprocity  Agreement  submitted  to 
Congress  by  President  Taft  in  February,  1911,  and 
enacted  into  law  in  the  following  autumn,  was  a  mutual- 
trade  bargain.  It  provided  for  the  free  exchange  of  a 
large  variety  of  agricultural  products,  for  reciprocally 
reduced  duties  on  some  manufactured  articles,  and  for 
special  rates  on  other  articles  which  it  was  not  possible 
to  place  on  the  basis  of  reciprocal  rates.  It  contained 
special  provisions  to  insure  the  United  States  obtaining 
print  paper.  In  the  interchange  of  natural  products 
it  was  true  that  the  Canadian  producers  had  more  to 
transport  across  the  border  than  would  be  exported  to 
them,  yet  American  farmers,  notwithstanding  that  they 
were  misled  into  violent  opposition,  would  have  received 
marked  advantages  in  the  wider  market  for  their  agri- 


116 


AMERICAN  FOREIGN  TRADE 


cultural  products.  The  failure  of  the  Dominion  Parlia- 
ment to  approve  the  agreement  prevented  a  test  of  its 
value  to  the  trade  relations  of  the  two  countries. 

President  Taft's  innovation  in  presenting  the  Ca- 
nadian Reciprocity  Agreement  to  the  House  of  Repre- 
sentatives had  much  to  commend  it.  It  was  not  a  formal 
treaty ;  it  was  an  agreement  between  the  Government  of 
the  United  States  and  the  Government  of  the  Dominion 
of  Canada  as  to  the  conditions  under  which  they  would 
admit  certain  products  into  each  other's  markets. 

The  agreement  w  as  transmitted  simultaneously  to  the 
Congress  of  the  United  States  and  to  the  Parliament 
of  the  Dominion.  In  the  United  States  the  House  of 
Representatives  therefore  took  original  jurisdiction,  and 
the  Senate  acted  after  a  bill  came  from  the  House,  as 
is  customary  in  tariff  legislation.  Objection  was  made 
that  Congress  could  not  modify  a  single  provision  with- 
out endangering  the  entire  measure,  but  the  practical 
aspect  was  that  if  new  conditions  arose  during  or  after 
the  pendency  of  the  legislation  the  two  governments 
could  amend  the  agreement  and  submit  the  amendments 
to  the  respective  legislative  bodies.  Actually,  there 
would  have  been  no  more  difficulty  in  securing  amend- 
ments than  happens  with  partizan  tariff  measures  where 
members  support  the  party  bill  and  accept  or  reject  only 
such  amendments  as  come  from  the  Ways  and  Means 
Committee. 

Another  objection  to  the  form  followed  in  the  agree- 
ment was  that  since  a  law  of  this  kind  is  for  no  definite 
period,  and  since  Congress  may  pass  subsequent  laws 
repealing  or  nullifying  it,  the  method  has  not  the  value 
of  •treaties,  because  these  are  for  a  fixed  and  definite 
period.     Theoretically,    this   argument   has   force.     In 


/ 


AMERICAN  TRADE  POLICY 


117 


practice  it  has  no  weight.  The  reason  is  that  Congress 
usually  enacts  tariff  legislation  without  regard  to  treat- 
ies. The  Wilson  Tariff  Law  of  1894  destroyed  the  pref- 
erence given  the  products  of  Brazil  and  other  countries 
under  the  Blaine  treaties.  They  were  for  a  fixed  period, 
but  they  were  terminated  immediately  when  this  law 
went  into  effect  by  its  automatic  operation  in  respect  to 
the  free  list  and  the  change  in  duties. 

The  only  recent  instance  in  which  Congress  in  enact- 
ing tariff  legislation  has  scrupulously  observed  treaty 
obligations  was  in  the  Payne- Aldrich  Act  of  1909.  This 
act  specifically  provided  that  nothing  in  it  should  affect 
the  Cuban  Reciprocity  Treaty ;  but  the  further  stipula- 
tion was  made  that  its  provisions  as  to  several  European 
countries  with  which  limited  reciprocity  conventions 
covering  several  commodities  were  in  force  should  not 
apply  to  these  commodities  until  the  treaties  had  been 
abrogated,  after  due  notice  by  the  Department  of  State. 

The  Underwood-Simmons  Law  of  1913  provided  that 
nothing  in  the  act  should  abrogate,  impair,  or  affect  the 
Cuban  treaty  except  the  proviso  to  Article  VIII,  which 
was  abrogated  and  repealed.  Article  VIII  provided 
that  during  the  existence  of  the  convention  no  greater 
reduction  than  twenty  per  cent,  on  Cuban  sugar  should 
be  allowed  and  no  sugar  the  product  of  any  other  foreign 
country  should  be  admitted  at  a  lower  rate  than  the 
existing  one.  This  provision  was  put  into  the  treaty 
as  a  Senate  amendment  at  the  insistence  of  the  high 
protectionists,  who  did  not  intend  that  the  Dingley  rates 
should  be  lowered  except  to  Cuba. 

The  Tariff  Act  of  1913',  however,  destroyed  the  main 
consideration  for  reciprocity  on  the  part  of  Cuba.  It 
provided  for  free  sugar  after  a  brief  period,  and  since 


118 


•AMERICAN  FOREIGN  TRADE 


AMERICAN  TRADE  POLICY 


119 


sugar  far  surpassed  the  remaining  Cuban  products,  the 
principal  economic  reason  for  the  treaty  ceased  to  exist. 
There  was  no  reciprocal  equivalent.  Cuba  might  have 
considered  the  free-sugar  market  of  the  United  States 
as  worth  having  on  the  same  terms  as  other  sugar-pro- 
ducing countries,  but  there  was  no  ground  why  she 
should  give  concessions  of  from  twenty  to  forty  per  cent, 
on  a  large  number  of  products  of  the  United  States  to 
get  what  other  countries  obtained  for  nothing. 

The  need  of  war  revenue  while  the  United  States  was 
still  a  neutral  caused  the  free-sugar  provision  of  the 
Underwood  Act  to  be  repealed.  With  the  continuance 
of  the  duty,  Cuba  was  not  under  the  necessity  of  de- 
nouncing the  treaty  and  withdrawing  the  preferential 
rates  given  products  of  the  United  States. 

Until  the  passage  of  the  Payne-Aldrich  Act  all  the 
trade  conventions  negotiated  by  the  United  States  were 
on  the  basis  of  the  single  schedule  system.  This  law 
introduced  a  new  principle  into  American  tariff  policy, 
that  of  the  double  tariff.  The  form  followed  was  an 
adaptation  of  the  conventional  tariffs  of  European 
countries  based  on  two  sets  of  schedules.  Maximum  and 
minimum  rates  were  provided,  the  minimum  being 
twenty-five  per  cent,  lower  than  the  maximum  rates,  or, 
as  it  was  sometimes  put,  the  maximum  being  twenty- 
five  per  cent,  higher  than  the  minimum  rates.  Nomi- 
nally, the  maximum  was  the  basic  tariff.  Virtually,  it 
was  not,  since  the  minimum  rates  were  accepted  as  the 
real  measure  of  customs  duties. 

Under  this  dual  tariff  commercial  relations  were  ad- 
justed with  one  hundred  and  thirty-four  countries.  No 
nation  sought  to  enforce  maximum  rates  against  the 
United  States,  and  all  received  the  minimum  rates. 


The  maximum  and  minimum  provision  was  useful  in 
securing  removal  of  discrimination  against  cotton-seed 
oil  and  other  American  products.  For  the  first  time  it 
enabled  something  to  be  effected  by  the  diplomacy  of 
commerce  in  securing  more  favorable  treatment  for 
American  live  stock  and  meat  products  under  the  re- 
strictions which  were  imposed  by  foreign  governments 
exercising  broad  police  powers  in  enforcing  sanitary 
regulations.  Some  of  the  most  acrid  chapters  in  Ameri- 
can diplomacy  were  the  record  of  controversies  on  this 
subject,  particularly  with  Germany  and  France. 

When  the  Payne-Aldrich  law  was  passed,  the  people 
of  the  United  States  were  consuming  the  bulk  of  the 
meat  production,  and  the  question  was  not  a  vital  one. 
Nevertheless,  advantage  was  taken  of  the  readjustment 
of  the  tariff  relations  to  secure  the  removal  of  dis- 
crimination, which  was  practiced  under  administration 
construction  and  pure-food  and  sanitary  regulations,  al- 
though neither  France  nor  Germany  admitted  that  their 
regulations  were  utilized  as  disguised  measures  of  pro- 
tectionism. The  whole  world,  however,  knew  that  the 
objection  was  an  economic  one  insisted  on  by  the  power- 
ful agrarian  aristocracy  of  Germany  and  by  the  French 
farmers  who  wanted  American  cattle  and  meats  kept  out 
of  France. 

The  maximum  and  minimum  experiment  was  crude, 
but  promising.  Its  operation  showed  distinct  advan- 
tages though  it  also  developed  defects.  Official  recom- 
mendations for  curing  these  defects,  and  giving  the  prin- 
ciple a  more  effective  application  had  been  made  when 
political  revulsion  changed  the  party  majority  in  Con- 
gress and  the  national  administration.  The  tariff  leg- 
islation following  this  political  change  was  based  on 


120 


AMERICAN  FOREIGN  TRADE 


AMERICAN  TRADE  POLICY 


121 


III 


the  single  schedule  system.  The  Tariff  Act  of  1913  car- 
ried a  section  authorizing  the  Executive  to  negotiate 
commercial  treaties,  which  should  be  submitted  to  Con- 
gress ;  but  this  provision  gave  the  President  no  authority 
that  he  did  not  already  possess. 

The  historic  background  of  American  trade  policy 
would  be  lacking  without  inclusion  of  the  favored- nation 
treatment.  In  retrospect  and  in  prospect  it  is  equally 
important. 

The  principle  found  expression  in  the  first  treaty  of 
amity  and  commerce  that  the  colonies  were  able  to  con- 
clude. This  was  the  treaty  with  France,  ratifi<!ations 
of  which  were  exchanged  at  Paris  in  July,  1778.  It 
contained  the  favored-nation  clause  in  the  form  which 
afterward  became  the  subject  of  controversy.  The 
treaty  of  1800  with  France,  which  also  contained  the 
favored-nation  article,  expired  by  limitation  in  eight 
years,  and  was  not  renewed.  The  treaty  for  the  cession 
of  Louisiana  recognized  that  concessions  of  a  political 
character  were  a  valid  basis  of  exchange  for  concessions 
of  a  commercial  character.  France,  however,  disagreed 
with  the  interpretation  which  the  United  States  put  on 
the  article  providing  that  the  ships  of  France  should  be 
treated  upon  the  footing  of  the  favored  nation  in  Amer- 
ican ports.  The  misunderstanding  was  cleared  by  the 
treaty  of  1831. 

In  this  convention  the  principal  of  reciprocity  was 
recognized,  and  it  was  also  recognized  that,  to  be  mutu- 
ally advantageous,  political  as  well  as  commercial  con- 
siderations should  be  taken  into  account.  The  United 
States  agreed  to  reduce  the  duties  on  French  wines  for 
a  period  of  ten  years,  in  return  for  which  France  not 
only  reduced  the  duty  on  long-staple  cotton  imported 


from  the  United  States,  but  relinquished  her  claims 
and  reclamations  respecting  the  disputed  article  of  the 
Louisiana  Cession. 

The  conditional  construction  put  on  the  favored-na- 
tion clause  by  the  United  States  has  been  reasonably 
uniform.  In  the  earlier  treaties  navigation  was  a  lead- 
ing feature  of  favored-nation  treatment.  The  United 
States  not  only  had  a  commerce  of  its  own  to  carry,  but 
was  the  carrier  through  its  merchant  marine  of  the 
commerce  of  other  countries.  Equality  with  the  ship- 
ping of  other  nations  in  foreign  ports  was  therefore 
important. 

One  of  the  clearest  expositions  of  the  conditional 
construction  was  given  a  full  century  ago  in  somewhat 
unique  circumstances.  In  the  revolt  of  the  Spanish- 
American  colonies,  the  province  of  Buenos  Aires  had 
sent  an  agent  to  the  United  States,  named  David  V. 
Forrest.  He  sought  to  be  received  as  consul-general, 
and  in  making  his  request  proposed  special  favors  in 
return  for  recognition.  John  Quincy  Adams,  secretary 
of  state,  under  date  of  May,  1818,  wrote  in  regard  to 
this  aspect  of  his  plea,  and  without  reference  to  the 
political  question,  as  follows : 

It  had  not  been  intended  to  suggest  to  Mr.  de  Forest  that 
it  was  in  any  manner  incompatible  with  the  independence 
or  sovereignty  of  a  nation  to  grant  commercial  advantages 
to  one  foreign  state  and  withhold  them  from  another.  If 
any  such  advantage  is  granted  for  an  equivalent,  other  na- 
tions can  have  no  right  to  claim  its  enjoyment,  even  though 
entitled  to  be  treated  as  the  most  favored  nation,  unless  by 
the  reciprocal  grant  of  the  same  equivalent. 

American  national  policy  has  been  to  secure  identical 
treatment  with  favored-nation  countries  under  identical 


r  \ 


L 


122 


AMERICAN  FOREIGN  TRADE 


or  similar  circumstances.  The  equivalence  clause, 
which  is  specifically  set  forth  in  most  of  the  commercial 
treaties,  and  inferentially  stated  in  the  others,  provides 
that  commercial  favors  granted  to  third  countries  shall 
be  enjoyed  by  the  party  claiming  most  favored  nation 
treatment  gratuitously,  if  so  granted,  or  for  equivalent 
compensation  if  granted  for  a  price.  The  French  treaty 
of  1778,  as  previously  stated,  was  one  of  the  first  in  which 
the  favored-nation  clause  was  inserted. 

The  Treaty  of  Ghent,  following  peace  with  England, 
stated  the  favored-nation  treatment  very  clearly.  The 
conditional  construction  as  it  has  been  adhered  to 
by  the  United  States,  and  has  been  upheld  by  the  Su- 
preme Court,  is  set  forth  in  the  diplomatic  correspond- 
ence of  many  administrations.  One  of  the  clearest  ex- 
positions was  that  made  by  Secretary  Frelinghuysen  in 
the  instructions  to  Mr.  Bingham,  the  American  Minister 
at  Tokio,  in  1884,  in  conection  with  a  diplomatic  con- 
troversy with  England.  In  this  communication  the  sec- 
retary of  state  said : 

The  English  contention  has  hitherto  been,  under  the  most- 
favored-nation  clause  of  the  treaties,  that  it  is  absolute,  and 
that  even  when  Japan  may  bargain  with  any  power  to  give 
it  a  favor  for  an  equivalent,  the  like  favor  must  be  granted 
to  England  without  equivalent. 

The  Japanese  contention  is  the  reverse  of  this,  being  that 
if  a  favor  for  a  specific  condition  be  stipulated  with  any 
one  nation  no  other  may  enjoy  the  favor  except  upon  iden- 
tical or  equivalent  conditions. 

The  theory  on  which  this  Government  views  the  question 
is  aMn  to  tiat  of  Japan.  For  example,  the  United  States 
have  just  concluded  a  commercial  treaty  with  Mexico  by 
which  each  country  especially  favors  the  other  by  putting  on 
its  free  list  certain  dutiable  products.    Under  the  favored- 


t 


AMERICAN  TRADE  POLICY 


123 


nation  clause  of  our  treaties  with  other  nations  we  are  not 
bound  to  give  their  products  the  benefit  of  our  free  list,  even 
though  such  country  may  not  impose  any  duty  on  the  arti- 
cles which  Mexico  has  free  listed  in  our  favor.  But  we  would 
be  willing  to  stipulate  to  give  a  third  power  the  favor  we 
give  Mexico  in  exchange  for  some  equivalent  favor  not  gen- 
eral as  toward  the  rest  of  the  world.^ 

The  bearing  of  the  favored-nation  clause  as  construed 
by  the  United  States  on  reciprocity  treaties  is  found  in 
the  diplomatic  correspondence  relating  to  the  Hawaiian 
Reciprocity  Treaty  and  the  Cuban  Reciprocity  Treaty. 
In  the  case  of  Cuba,  efforts  to  break  the  force  of  the 
agreement  were  made  by  several  countries,  notably  by 
Germany.  The  United  States  declined  to  recognize  the 
contentions  put  forward  by  foreign  governments.  There 
was  not  only  the  relation  of  proximity,  but  there  were 
other  special  considerations,  among  them  the  exceptional 
nature  of  the  status  of  Cuba  in  respect  to  the  United 
States  as  recognized  by  the  Cuban  Constitutional  Con- 
vention in  incorporating  the  Piatt  Amendment  and  in 
other  ways.  The  contention  was  not  seriously  pressed 
by  any  of  the  foreign  governments.  Their  representa- 
tions were  more  in  the  nature  of  manoeuvers  to  feel  out 
the  intention  of  the  United  States. 

After  the  Canadian  Reciprocity  Agreement  was  ne- 
gotiated, several  governments  also  raised  questions  as 
to  the  application  of  favored-nation  treatment.  The 
representations  were  generally  of  an  informal  character. 
The  United  States  consistently  replied  that  propinquity 

1  For  a  concise  review  of  the  subject  see  "  Reciprocity  Treaties,  Fa- 
vored Nation  Clauses,"  by  John  Ball  Qsborne,  of  the  Department  of 
State,  Senate  Document  No.  29,  62nd  Congress,  2nd  Session.  See  also 
Moore's  "  International  Law  Digest "  and  the  TariflF  Commission's  Re- 
port on  Reciprocity  and  Commercial  Treaties,  1919. 


124 


AMERICAN  FOREIGN  TRADE 


and  other  considerations  of  a  special  character  took  the 
reciprocity  agreement  out  of  the  favored-nation  treat- 
ment. 

A  paragraphic  r6sum6  such  as  has  been  given  in  the 
preceding  pages  may  be  thought  an  inadequate  presenta- 
tion of  the  historic  element  in  tariff  legislation  and 
trade  policy.  But  the  American  public  mind  is  an  im- 
patient public  mind ;  it  cares  little  for  the  past,  and  is 
willing  to  absorb  the  teachings  of  experience  without 
moralizing  on  them,  if  there  be  any  moral.  The  truth  is 
that  in  the  varying  moods  of  the  American  people  on 
the  tariff  as  a  domestic  measure,  reactions  from 
one  extreme  to  another,  from  tariff  boosting  to  tariff 
smashing,  and  so  on  around  the  circle,  have  afforded 
small  field  for  the  evolution  of  a  consistent  policy  in 
relation  to  foreign  commerce.  There  was,  moreover,  the 
lack  of  interest  in  foreign  trade  as  a  means  of  expanding 
domestic  production.  But  in  the  new  era,  with  the 
world-wide  developments,  the  imperative  necessity  exists 
of  determining  the  basis  of  future  trade  relatione. 


CHAPTER  IX 

AMERICAN  TRADE  POLICY    (CONTINUED)' 

Adjustment  of  United  States  commerce  to  competitive  conditions  — 
Flexible  and  inflexible  tariffs  —  Defects  in  maximum  and  minimum  pro- 
visions of  the  Payne-Aldrich  Act  —  Amendment  proposed  by  Secretary 
Knox  —  Rejected  retaliatory  clause  in  Underwood  bill  —  Tariff  Com- 
mission's approval  of  retaliatory  schedules  —  Means  of  securing  equality 
of  treatment  for  American  goods  —  Bargaining  tariffs  —  House  of  Rep- 
resentatives as  source  of  revenue  legislation  —  Dyes  and  potash  —  Ex- 
port combinations  —  The  Webb-Pomerene  Law  —  Price-lists  abroad  and 
at  home  —  Export  railway  rates  —  Objections  to  government  control  — 
Individual  enterprise  in  foreign  business. 

WORLD  trade  is  competitive  trade.  That  is 
one  of  the  commonplaces  of  international 
commerce  which  the  United  States  must 
in  determining  its  own  policy.  But 
other  facts  to  be  recognized  as  conse- 
quences of  the  Great  War  which  must  be  taken  in 
connection  with  the  competitive  nature  of  world  trade. 
One  is  the  resurgence  of  nationalism  reflected  in  the 
fiscal  and  economic  legislation  of  the  several  commercial 
nations.  England  in  her  adoption  of  imperial  prefer- 
ence and  in  her  measures  for  stimulating  and  fomenting 
British  industry  in  its  effects  abroad  is  the  most  striking 
example.  Yet  other  countries  also  supply  illustrations. 
The  United  States  must  readjust  its  trade  relations  as 
they  will  be  modified  and  affected  by  the  policies  of 
other  nations.  It  must  view  the  so-called  neutral  mar- 
kets in  their  detached  aspect  and  also  as  influenced 

125 


recognize 
there    are 


126 


AMERICAN  FOREIGN  TRADE 


by  the  competition  of  European  countries.  It  must  de- 
termine the  amount  of  protection  which  shall  be  given 
domestic  industries  in  the  light  of  the  activities  of  the 
country  seeking  its  market,  as  well  as  with  regard  to 
the  revenues  to  be  raised  from  customs  duties.  With 
a  benign  international  policy  already  determined,  it  will 
not  be  possible,  nevertheless,  to  ignore  the  knowledge 
that  as  a  world  power  in  international  commerce  the 
United  States  still  believes  in  its  own  nationalism  in 
commercial  intercourse. 

Two  lines  of  activity  call  for  determination.  One 
relates  to  the  fiscal  and  economic  policy  which  shall  be 
formulated  and  made  effective  by  the  legislative  branch 
of  the  government.  The  other  relates  partly  to  ad- 
ministrative measures  resting  on  legislative  enactment, 
and  partly  to  the  degree  of  participation  or  non -partici- 
pation of  the  Government  in  foreign  trade. 

In  making  treaty  arrangements  it  may  be  assumed 
that  the  United  States  will  continue  to  adhere  to  the 
conditional  favored-nation  treatment.  Nothing  in  the 
domestic  situation  calls  for  a  change,  and  the  readjust- 
ment of  the  trade  policies  of  other  nations  does  not 
furnish  ground  for  the  United  States  reversing  its  his- 
toric policy.  Whether,  in  the  commercial  treaties  ne- 
gotiated by  European  countries,  the  unconditional 
favored-nation  clause  be  abandoned,  or  whether  it  be  re- 
tained does  not  seriously  concern  the  United  States. 
The  conditional  construction  has  worked  well  for  it  and 
the  tendency  will  be  to  assume  that  this  construction 
will  still  work  satisfactorily. 

A  more  vital  question  than  favored-nation  construc- 
tion relates  to  general  tariff  policy.  The  question  of 
the  future,  in  view  of  the  economic  policies  in  process 


AMERICAN  TRADE  POLICY 


127 


of  adoption  by  other  countries,  is  whether  American 
trade  policy  shall  be  based  on  an  inflexible  or  a  flexible 
tariff.  This  is  said  without  regard  to  political  views. 
What  the  United  States  wants  in  order  to  give  free  op- 
portunity for  its  expansion  into  foreign  trade  is  equality 
in  the  markets  of  the  world. 

This  was  the  fundamental  proposition  on  which  the 
maximum  and  minimum  tariff  of  1909  was  adjusted.  In 
some  instances  where,  from  the  nature  of  the  trade  inter- 
course, there  could  be  no  exact  equivalency,  the  principle 
of  <?ompensatory  concessions  was  adopted,  though  the 
main  purpose  was  never  lost  sight  of.  This  was  that 
there  should  be  no  unjust  discrimination  against  Ameri- 
can goods.  The  President,  through  his  subordinates,  de- 
termined in  the  light  of  actual  circumstances  what  were 
unjust  discriminations  and  what  were  just  ones.  That 
is,  what  were  inherent  in  the  conditions  of  the  trade 
of  the  several  countries  which  justified  discrimination 
and  what  were  unfriendly.  The  plan  followed  sought 
no  favors  for  the  United  States;  it  merely  sought  free 
opportunity  with  other  competitors  in  open  markets. 

The  defects  of  the  maximum  and  minimum  provision 
have  been  indicated  in  the  previous  chapter,  together 
with  some  of  the  remedies  proposed  for  overcoming  them. 
They  call  for  further  exposition.  The  principal  defect 
was  the  lack  of  adaptability.  The  mere  enactment  of 
two  schedules  or  sets  of  duties  gave  little  elasticity. 
The  maximum  schedule  was,  in  fact,  prohibitive,  and  its 
application  to  any  country  would  have  meant  an  out- 
right trade  war,  which  could  not  have  depended  upon 
public  sentiment  for  support.  After  the  full  possibili- 
ties of  the  tariff  of  1909  had  been  exhausted,  the  neces- 
sity of  a  more  elastic  scale  of  duties  became  apparent. 


li 


I 


128  AMERICAN  FOREIGN  TRADE 

Experience  also  demonstrated  that  under  a  dual  tariff 
the  establishment  of  a  rigid  free  list  was  not  good  com- 
mercial policy. 

The  Department  of  State,  after  an  experience  of  two 
years  in  seeking  equal  opportunities  for  American  goods 
in  foreign  markets,  proposed  a  remedy.    This  was  ont- 
iined  m  a  letter  of  Secretary  Knox  to  the  Ways  and 
Means  Committee  in  December,  1911.    The  secretary  of 
state  after  reciting  the  advantages  which  had  been  ob- 
tained under  the  maximum  and  minimum  provisions, 
and  the  concessions  made  by  various  countries,  explained 
where  discriminations  were  still  practised  and  where 
American  trade  was  at  a  disadvantage.    He  remarked 
that  similar  instances  of  discrimination  as  l.etween  Eu- 
ropean nations  found  adjustment  through  means  at  hand 
for  specific  retaliation  where  conciliatory  measures  had 
failed. 

An  amendment  to  Section  2  -  that  is,  the  section  con- 
tainmg  the  schedules  and  the  free  list- was  submitted 
by  Secretary  Knox.    It  provided  for  varring  rates  to  be 
added  to  the  minimum  rate,  not  less  than  ^ve  per  cent 
ad  valorem,  and  not  exceeding  twenty-five  per  cent,  ap^ 
plicable  by  proclamation  when,  through  the  investiga- 
tions  made  at  the  instance  of  the  President,  he  should 
become  satisfied  that  another  nation's  laws  or  practices 
as  relating  either  to  tariffs  or  commercial  methods  hav- 
mg  governmental  sanction  were  inimical  to  that  equal 
opportunity  for  trade  and  commerce  to  which  American 
enterprise  was  fairly  entitled.    The  secretary  of  state  de- 
Glared  : 

It  is  realized  that  the  gravity  of  the  offense  should  be  met 
by  a  suitable  remedy,  one  that  may  be  graduated  to  meet 
tne  degree  of  embarrassment  sought  to  be  corrected     This 


AMERICAN  TRADE  POLICY 


129 


might  call  for  the  imposition  of  additional  duties  of  from 
five  to  twenty-five  per  centum  upon  a  few  commodities,  or 
it  might  require  that  all  of  a  nation's  exports  to  the  United 
States  should  be  made  subject  to  rates  of  duty  higher  than 
the  existing  minimum.  Instances  might  arise  where,  to  sub- 
ject commodities  now  upon  the  free  list  to  the  payment  of 
duties  would  be  found  to  be  the  only  measure  of  relief  for 
offiensive  treatment;  or  the  prohibition  of  imports  in  aggra- 
vated cases  might  be  necessary.^ 

An  adverse  political  majority  in  Congress  did  not  take 
kindly  to  these  suggestions.  The  proposed  amendment 
died  in  the  Ways  and  Means  Committee.  The  revulsion 
of  political  sentiment  which  continued  until  a  national 
administration  of  the  opposite  party  came  into  power 
resulted  in  the  complete  wiping  out  of  the  maximum  and 
minimum  principle  in  tariff  legislation.  Yet  while  the 
bill  was  under  discussion,  which  resulted  in  the  Tariff 
Act  of  1913,  consideration  was  given  to  the  recommenda- 
tions made  by  the  previous  national  administration. 

In  the  Senate  an  amendment  was  offered  to  the  House 
bill  which  sought  to  meet  the  situation  described,  and 
to  secure  equality  of  opportunity  for  American  goods  in 
countries  which  might  discriminate.  The  amendment 
provided  that  the  President  should  have  power  to  sus- 
pend the  rates  assessed  upon  the  importation  of  certain 
specified  articles,  and  to  substitute  new  rates,  which  were 
set  forth  in  detail.  Among  the  commodities  upon  which 
increased  duties  were  to  be  laid  were  fish,  coffee,  tea, 
lemons,  chinaware,  coal,  cheese,  wines  of  all  kinds,  malt 
liquors,  knitted  goods,  silks,  laces  and  embroideries, 
jewelry,  sugar  and  molasses  and  wool. 

The  amendment  was  adopted  by  the  Senate,  but  was 

1  See  Appendix  A  for  text  of  the  Knox  amendment. 


130 


AMERICAN  FOREIGN  TRADE 


stricken  out  in  conference  with  the  House  and  the  tariff 
of  1913  became  effective  without  any  provision  for  secur- 
ing equality  of  treatment  for  American  products  in  for- 
eign markets.* 

Experience  with  the  tariff  measure  of  1913  under  war 
conditions  could  not  be  looked  on  as  a  satisfactory 
means  of  determining  whether  or  not  retaliatory  pow- 
ers were  necessary.  But  the  Tariff  Commission,  looking 
to  the  future  and  judging  in  the  light  of  its  own  investi- 
gations, apparently  reached  the  conclusion  that  means 
of  retaliation  are  desirable.  In  its  report  on  Reciproc- 
ity and  Commercial  Treaties  it  endorsed  the  principle 
of  retaliatory  schedules  and  made  recommendations  fol- 
lowing closely  the  maximum  and  minimum  tariff  pro- 
visions as  they  had  been  advocated  by  Secretary  Knox. 
President  Wilson  in  his  message  'to  Congress  in  May, 
1919,  approved  the  recommendations  of  the  Tariff  Com- 
mission and  endorsed  the  policy  of  previous  national 
administrations  in  seeking  means  to  secure  equality  of 
treatment  for  American  goods  abroad.  The  endorse- 
ment thus  given  to  the  policy  of  the  Taft  administration 
and  the  principle  embodied  in  the  Payne-Aldrich  Act 
therefore  would  seem  to  divest  the  subject  of  a  partizau 
aspect. 

These  concurrent  views  indicate  the  possibility  of  a 
return  to  the  maximum  and  minimum  schedules  of  a 
double  tariff.  Reciprocity  of  retaliation  as  well  as  reci- 
procity of  benefits  may  be  provided  on  a  single  schedule 
basis.  Retaliation  of  this  character  was  proposed  in  the 
rejected  amendment  to  the  Underwood  bill  with  its  sin- 
gle schedule,  but  the  basis  is  too  narrow  for  a  broad 
national  policy.  The  trading  or  bargaining  tariff  is 
much  better  adapted  to  the  conditions  which  the  United 

1  See  Appendix  A  for  text  of  the  rejected  Senate  amendment. 


AMERICAN  TRADE  POLICY  131 

States  will  have  to  meet  in  the  permanent  adjustment  of 
its  commercial  relations  with  other  countries.  Such  a 
tariff  assures  both  flexibility  and  elasticity.  It  lays  a 
broad  foundation  for  negotiation  and  for  adjustment  to 
special  circumstances.  With  a  definite  affirmation  of 
the  intention  of  the  United  States  to  secure  equality  of 
treatment  for  its  products  in  the  markets  of  other  coun- 
tries,  the  means  must  be  provided  and  the  flexible  sched- 
ules, within  defined  limitations,  become  the  instrument. 
The  bargaining  tariff  assumes  that  the  markets  of  the 
United  States  are  a  consideration  to  trading  countries. 
The  term  is  distressing  to  a  class  of  international  ideal- 
ists, but  it  is  simply  the  recognition  of  the  practical 
character  of  trade  relations.  They  cannot  be  idealized 
out  of  existence. 

In  the  fiscal  legislation  of  the  future  friction  would 
be  avoided  by  the  recognition,  fundamentally,  that  under 
the  Constitution  revenue  legislation  originates  in  the 
House  of  Representatives.  While  the  Executive,  in  con- 
junction with  the  Senate,  constitutes  the  treaty-making 
power,  the  House  of  Representatives  so  often  has  vindi- 
cated its  right  to  share  in  this  power  when  revenue  legis- 
lation is  embodied  in  treaties  that  the  question  no  longer 
possesses  even  an  academic  interest.  The  true  policy 
would  be,  after  establishing  a  double  tariff  system  with 
maximum  and  minimum  duties,  to  lay  down  the  basis 
on  which  trade  treaties  shall  be  negotiated. 

Congress,  under  this  plan  of  legislation,  might  specify 
the  articles  on  which  reduction  of  duties  shall  be  granted, 
or  on  which  duties  shall  be  increased,  and  also  articles 
on  the  free  list  which  may  be  made  dutiable,  and  the 
^ange  of  duties  which  shall  be  levied  on  them  coming 
from  any  country  which  discriminates  against  the  pro- 


132 


AMERICAN  FOREIGN  TRADE 


AMERICAN  TRADE  POLICY 


133 


ducts  of  the  United  States.  The  Executive  should  be 
left  to  determine  whether  such  discrimination  exists,  and 
then  automatically  to  apply  the  schedules  provided  by 
Congress.  The  common  objection  made  to  this  propo- 
sition is  that  it  vests  legislative  authority  with  the  Ex- 
ecutive, but  the  same  objection  is  raised  to  any  legisla- 
tion that  leaves  a  certain  amount  of  discretion  with  the 
President.  In  commercial  relations  disc^rimination, 
after  all,  is  a  matter  of  fact  and  not  of  opinion.  When 
Canada  gave  Italy,  for  example,  a  lower  rate  on  electri- 
cal goods  than  was  given  the  United  States  on  similar 
goods,  that  was  discrimination.  Provision  also  should 
be  made  for  meeting  discrimination  against  American 
trade  and  industry  through  export  duties,  whether  they 
be  imposed  by  independent  nations  or  by  colonies  and 
dependencies. 

Little  of  the  war  legislation  enacted  by  Congress  was 
of  a  tariff  nature  or  had  relation  to  after-the-war  trade. 
The  chemical  and  dye  industry  was  given  encouragement 
against  a  possible  German  peace  attack.  This  was  done 
by  the  anti-dumping  provision  and  the  schedule  of  duties. 
The  Government  gave  further  support  through  the  aid  of 
its  textile  experts  and  the  technical  information  which  it 
has  gathered  on  the  whole  subject.  No  direct  financial 
subsidy  was  granted,  as  was  done  by  England  in  estab- 
lishing her  chemical  and  dye  industry,  and  none  was 
wanted.  Whether  the  provisions  in  the  peace  settlement 
and  the  further  tariff  legislation  are  sufficient  to  pre- 
vent German  dumping  can  be  decided  only  by  experience, 
but  there  would  seem  to  be  no  serious  danger.  What 
the  dye  and  chemical  industries  have  to  meet  in  the  fu- 
ture is  the  possibility  of  competition  from  the  state-aided 
British  dye  and  chemical  industry. 


Potash  presents  a  situation  which  also  calls  for  pro- 
tective legislation.  Before  the  war  this  raw  material  of 
agriculture  was  thought  to  be  as  much  a  natural  monop- 
oly of  Germany  as  the  soda  nitrates  are  of  Chile.  In 
the  early  months  of  hostilities  some  of  her  boastful  econ- 
omists even  declared  that  she  would  starve  the  agricul- 
ture of  the  United  States  so  that  it  would  not  dare  to  be- 
come a  belligerent. 

The  war  quickened  the  activities  of  the  Government, 
which  had  concerned  themselves  with  seeking  means  of 
utilizing  the  seaweed,  or  kelp,  of  the  Pacific,  and  also 
with  prospecting  the  regions  of  possible  discovery.  Pot- 
ash lakes  were  discovered  in  Nevada  and  Utah.  The 
manufacture  of  potash  from  blast-furnace  dust  and  from 
other  by-products  was  also  attempted  successfully.  A 
genuine  potash  industry  was  thus  evolved  out  of  the  war 
necessities.  The  fostering  care  of  the  Government  may 
be  further  necessary  to  bring  it  to  a  successful  issue,  but 
this  essential  raw  material  of  agriculture  ultimately  will 
be  supplied  by  the  domestic  production. 

The  principal  measure  enacted  by  Congress  during 
the  war  period  for  the  extension  of  American  foreign 
trade  was  passed  before  the  United  States  became  a  bel- 
ligerent. This  was  known  as  the  Webb-Pomerene  Act. 
It  was  recommended  in  a  stirring  report  by  the  Federal 
Trade  Commission.  A  paragraph  relating  to  the  great 
world  trade  power  which  since  the  war  has  entered  on  a 
new  course  of  amalgamations  and  combinations  with 
governmental  direction  and  participation  is  illuminat- 
ing.    The  report  said: 

British  manufacturers  have  relied  upon  an  unusually  ef- 
fective merchandising  organization  for  foreign  trade,  long  es- 
tablished in  foreign  markets,  and  giving  British  products 


134 


AMERICAN  FOREIGN  TRADE 


i(„ 


a  superior  representation  there;  but  in  various  important 
industries  they  have  gone  much  further.  The  most  of  the 
great  coal  export  business  is  done  by  powerful  organizations 
combining  mine  operators,  marketing  companies,  shipping 
lines,  and  foreign  distributing  comi)anies.  This  gives  British 
coal  its  grip  on  the  rich  South  American  market.  British 
cement  manufacturers  are  united  in  a  strong  and  successful 
union  for  the  extension  of  their  overseas  trade.  In  the  elec- 
trical, cotton  textile,  pottery,  tobacco,  wall  paper,  iron  and 
steel,  and  various  other  industries,  strong  associations  and 
combinations  are  important  factors  in  foreign  and  domestic 
business.  ... 

Combinations  of  British  coal  brokers  "Qx  the  contract  price 
for  bunkering  ships  at  Newport  News.  Four  London  firms 
known  as  the  Fixing  Board  daily  set  the  price  of  silver  for 
the  world,  and  American  mining  companies  must  sell  their 
silver  for  either  the  English  or  the  great  Indian  market 
to  one  of  these  four  houses.  .  .  .  These  combinations  con- 
stantly make  individual  producers  bid  against  each  other, 
and  are  thus  able  to  buy  at  prices  near  or  below  the  cost 
of  production.  By  such  tactics  the  present  contract  price 
for  bunkering  ships  in  Hampton  Roads  has  been  fixed  at  five 
to  seven  cents  per  ton  below  the  domestic  price.^ 

The  Webb-Pomerene  Act  was  in  reality  of  a  negative 
character,  since  the  purpose  was  to  relieve  exporters  who 
might  combine  for  foreign  trade  from  the  penalties  pro- 
vided by  the  anti-trust  laws  against  combination  in  do- 
mestic trade.  The  measure  was  specifically  entitled 
"  An  Act  to  Promote  Export  Trade."  It  showed  a  clear 
perception  of  the  circumstance  that  world  trade  is  com- 
petitive trade,  and  it  undertook  to  place  the  manufactur- 
ers and  exporters  of  the  United  States  in  a  position  to 
compete  with  other  countries.  They  were  specifically 
inhibited  from  doing  anything  at  home  or  abroad  to  re- 

1  Report  of  the  Federal  Trade  Commission  on  cooperation  in  Amer- 
ican export  trade,  Washington,  1916. 


AMERICAN  TRADE  POLICY 


135 


strain  the  export  trade  of  any  American  competitor. 

Abroad,  and  especially  in  South  America,  the  law  was 
looked  upon  with  some  suspicion.  It  was  criticized  as 
a  measure  to  enable  manufacturers  in  the  United  States 
to  dump  their  goods  in  foreign  countries  and  to  estab- 
lish trusts  which  would  dominate  the  foreign  market. 
The  critics  overlooked  or  misinterpreted  the  fact  that  the 
law  does  not  permit  combinations  in  manufacturing,  but 
only  in  selling.  It  has  little  similarity  to  the  German 
syndicates,  or  Kartells,  since  Germany  permitted,  and 
even  encouraged,  combinations  in  the  home  market.  Ac- 
tually one  motive  was  to  enable  American  manufacturers 
to  meet  the  competition  of  the  German  Kartells,  for  at 
the  time  of  its  enactment  legislators  could  not  foresee 
how  completely  Germany  as  a  world  trade  power  would 
disappear  from  the  map. 

After  the  armistice  was  signed,  the  disposition  of 
American  manufacturers  to  take  the  Webb-Pomerene  Act 
at  its  full  worth  became  very  marked.  It  was  seen  that 
many  advantages  could  be  derived  from  cooperation  as 
a  single  organization  by  numerous  afl&liated  industries, 
some  of  them  competitors  at  home.  Many  export  asso- 
ciations therefore  were  formed.  Basically,  this  meant 
going  into  foreign  trade  on  a  wholesale  instead  of  on  a 
retail  basis.  Experience  will  be  necessary  to  demon- 
strate the  full  value  of  these  combinations  to  domestic 
industry.  It  also  will  demonstrate  what  is  structurally 
weak  in  the  legislation,  and  further  legislation  doubt- 
less will  be  required  to  make  the  original  law  fully  ef- 
fective. But  the  right  to  combine  in  export  business, 
and  the  value  of  such  combination  in  foreign  trade,  is  al- 
ready fixed  as  a  principle  of  American  trade  policy. 

Some  other  factors  in  foreign  trade  have  not  yet  been 


k 


136 


AMERICAN  FOREIGN  TRADE 


AMERICAN  TRADE  POLICY 


137 


given  recognition.  They  do  not  require  legal  sanction. 
Among  these  is  the  question  of  prices.  Since  world 
trade  is  competitive  trade,  it  necessarily  is  largely  a 
question  of  prices.  Quality,  credits,  adaptation  to  local 
peculiarities,  established  trade  connections,  transporta- 
tion facilities,  international  exchange  —  all  these  enter 
into  it ;  but  in  its  broadest  and  most  compreh4?nsive  sense 
the  country  whose  manufacturers  can  sell  in  another 
country  continuously  at  the  lowest  price  is  bound  to  get 
the  trade.  The  American  manufacturer,  whether  a  sin- 
gle firm,  a  great  corporation,  or  a  combination  of  com- 
panies acting  as  an  export  association,  who  cannot  meet 
this  condition  will  be  unable  to  get  a  foothold  and  main- 
tain it. 

This  opens  up  the  whole  policy  of  selling  goods  at 
lower  prices  abroad  than  at  home.  A  stigma  has  been 
put  on  the  practice  because  lower  export  prices  than  do- 
mestic prices  was  a  distinctive  feature  of  the  German 
state  policy.  It  also  has  entered  into  the  sale  of  British 
goods  more  than  appears  on  the  surface. 

The  plan  has  never  been  popular  in  the  United  States. 
It  has  been  the  familiar  theme  of  denunciation  by  politi- 
cal orators.  Manufacturers  have  found  their  catalogues, 
giving  lower  prices  abroad  than  at  home,  quoted  against 
them  as  a  heinous  indictment.  It  has  been  useless  for 
them  to  seek  to  explain  that  the  question  is  one  of  aver- 
aging overhead  charges  and  keeping  their  factory  ca- 
pacity fully  employed  in  order  that  there  may  be  real 
economy  in  production.  Nevertheless,  the  situation  is 
one  that  has  to  be  met  squarely. 

In  the  future  expansion  of  American  trade  it  will  be 
even  a  bigger  question  than  in  the  past,  bc^cause  of  a 
competition  that  will  be  more  powerful  than  the  compe- 


tition of  Germany  ever  was.  Are  the  American  people 
willing  that  this  competition  be  met?  If  so,  they  must 
make  up  their  minds  to  acquiesce  in  seeing  many  Amer- 
ican products  sold  abroad  at  lower  prices  than  are  ob- 
tained at  home.  Yet  this  does  not  mean  that  the  prac- 
tice need  become  universal,  or  a  cardinal  point  of  trade 
policy.  It  simply  means  that  specific  situations  must  be 
met  as  they  arise. 

Another  question  relates  to  the  granting  of  lower  rail- 
way rates  on  goods  for  export.  It  was  instituted  by  the 
railroads  and  was  upheld  by  the  Supreme  Court.  For 
example,  iron  and  steel  products  for  export  were  given 
a  discount  of  thirty-three  and  one-third  per  cent,  from 
the  domestic  rate.  This  was  German  practice,  but  it 
was  British  practice,  too.  In  the  economic  protection, 
or  new  protection  policy  of  England,  these  lower  rates 
promise  to  loom  largely.  This  is  notwithstanding  the 
geographical  situation  of  the  industrial  centers  of  Eng- 
land with  their  closeness  to  the  seaboard,  and  no  such 
thing  as  a  long  haul.  It  is  another  instance  of  the  cer- 
tainty that  foreign  trade  policy  cannot  be  based  on  ab- 
stractions. The  American  policy  cannot  ignore  the  pol- 
icies of  other  commercial  nations.  Special  export  rates, 
however,  have  been  merely  the  offset  of  special  import 
rates.  The  Interstate  Commerce  Commission  provided 
import  rates  to  interior  points  from  the  seaboard  lower 
than  the  ordinary  rates,  and  this  practice  was  frequently 
criticized  as  an  indirect  means  of  lowering  protective 
duties.     The  real  purpose  was  a  transportation  one. 

American  tendencies  in  foreign  trade  have  shown 
themselves  to  be  wholly  distinct  from  the  tendencies  of 
the  European  nations.  The  functions  of  the  Govern- 
ment are  clearly  indicated.    American  business  men  do 


138 


AMERICAN  FOREIGN  TRADE 


AMERICAN  TRADE  POLICY 


139 


ill 


not  want  too  great  or  too  much  official  interference  even 
for  beneficial  purposes.  The  Government,  through  its 
numerous  agencies,  gathers  and  puts  at  their  disposal 
technical  and  other  information  regarding  foreign  mar- 
kets. It  removes  certain  obstacles  to  their  ability  to 
compete  in  those  markets.  It  now  assures  them  ships 
to  carry  their  cargoes,  but  it  does  not  undertake  to  regu- 
late the  processes  of  their  foreign  sales. 

Both  the  American  theory  and  the  American  practice 
are  to  avoid  over-regulation.  The  fewer  rest  rictions  on 
individual  transactions  the  greater  will  be  the  facility  for 
supplying  the  markets  abroad.  In  other  words,  as  little 
interference  with  business  as  possible.  American  man- 
ufacturers and  exporters  do  not  worry  over  the  knowl- 
edge that  they  are  competing  not  with  the  individual  ex- 
porters of  the  United  Kingdom  or  other  European  coun- 
tries, but  with  the  state  in  the  abstract,  or  the  govern- 
ment in  the  concrete,  so  long  as  they  are  not  hampered 
by  their  own  government. 

Public  sentiment  indorses  this  view,  partly  as  a  re- 
sult of  domestic  conditions.  During  the  war  there  were 
many  patriotic  persons  filling  responsible  positions  and 
exercising  arbitrary  authority  who  thought  they  saw  how 
the  country  could  be  served  in  its  foreign  trade  if  they 
were  allowed  to  exercise  this  arbitrary  authority  under 
peace.  The  great  body  of  American  public  opinion, 
which  acquiesced  cheerfully  in  unlimited  war  powers  in 
order  to  carry  on  hostilities,  resented  the  abuse  of  these 
war  powers  as  a  means  of  establishing  government  con- 
trol of  the  transportation  and  telegraphic  facilities. 
^  The  reaction  was  reflected  in  measures  relating  to  for- 
eign trade,  although  the  general  public  had  not  the  full 
knowledge  of  the  effort  to  control  this  along  theoretic 


lines  that  those  actually  in  the  business  had.  The  strug- 
gle may  not  be  completely  ended,  for  bureaucracy  was 
able  to  impress  itself  very  deeply  in  the  general  business 
of  the  country.  But  whenever  the  issue  becomes  clear 
between  bureaucracy,  whether  domestic  or  international, 
whether  applied  to  domestic  affairs  or  expanded  into 
world  trade,  and  individualism,  it  is  reasonably  certain 
that  individualism  will  win. 

Bureaucratic  control  of  trade  and  industry  in  other 
countries  is  not  a  convincing  argument  for  Americans, 
American  industries  during  the  war  did  not  seek  govern- 
ment subsidies.  In  peace  they  do  not  ask  subvention  of 
corporations  which  may  seek  to  engage  in  foreign  trade. 
They  do  not  ask  that  the  Government  become  a  partner 
in  financial  institutions  which  seek  to  become  mediums 
of  international  commerce.  To  them  the  American  pol- 
icy which  gives  the  best  promise  of  success  in  the  compe- 
tition for  world  trade  is  the  encouragement  to  individual 
effort  by  keeping  it  free  from  too  much  governmental 
control.  This  is  the  corollary  of  a  national  policy  which 
assures  freedom  from  discrimination  and  equality  of  op- 
portunity  in  the  markets  of  all  countries. 


i 


h): 


CHAPTEK  X 


ill 


THE  CABGO-CAREIERS 

Circumstances  leading  to  revival  of  the  merchant  marine—  The  golden 
age  of  American  shipping  —  Measures  for  its  restoration  —  The  war 
boom --.  Failure  of  tariff  devices  — Shipping  Act  of  1916 -Supple- 
mental legislation  —  Increased  tonnage  of  the  United  States —  The 
ship-buildmg  program  -  Questions  of  policy -The  Seaman's  Act- 
Keaction  from  government  ownership— Competition  with  Great  Britain. 

THE  United  States  at  last  is  afloat.     This  is  the 
outcome  of  events  before  and  during  the  Great 
War.     It  is  a  positive  chapter  of  American  trade 
policy. 

Revival  of  the  merchant  marine  had  begun  before  the 
opening  of  hostilities.  This  was  through  the  adoption 
of  a  program  under  which  the  Government  was  to  enter 
into  competition  with  private  companies  for  the  con- 
struction and  operation  of  vessels.  The  policy  was  de- 
batable, but  a  principle  was  recognized  in  the  legislation, 
and  a  condition  was  met  in  the  actual  shipbuilding  pro- 
gram. The  principle  was  that  no  commercial  nation  is 
self-supporting  which  depends  on  foreign  bottoms,  and 
that  it  is  better  for  a  country  to  pay  its  own  people  ocean 
freights  than  to  pay  them  to  foreigners.  The  condition 
was  that  if  the  promise  of  commercial  expansion  were 
to  be  realized,  American  shipbuilding  must  have  a  posi- 
tive place  in  that  expansion. 

"  We  are  perfectly  justified,"  wrote  an  eminent  Euro- 
pean economist  in  the  early  years  of  the  present  century, 

140 


m 


THE  CARGO-CARRIERS 


141 


"  in  believing  that  the  United  States  will  eventually  re- 
gain its  old-time  prominence  among  maritime  nations. 
The  day,  doubtless  still  far  distant,  when  it  does  regain 
it  will  mark  the  extension  of  its  economic  influence  over 
a  very  large  portion  of  the  world,  if  not  over  the  entire 
world."  ^ 

The  time  was  not  so  far  distant,  though  the  approach 
was  gradual.  To  realize  the  extension  of  its  economic 
influence,  the  United  States  must  be  in  the  position  of 
controlling  two  thirds  of  the  cargo-carriers  of  its  own 
commerce.  This  is  the  aim  of  maritime  nations.  When 
the  Great  War  began,  out  of  an  approximate  world's 
gross  tonnage  of  49,000,000  tons  the  United  States  had 
less  than  3,000,000  tonnage  employed  in  foreign  trade. 
When  it  opened  hostilities  with  Germany  this  had  in- 
creased only  by  a  million  and  a  half  tonnage,  part  of 
which  was  due  to  purchases  of  foreign  vessels  to  which 
registry  under  the  American  flag  was  permitted. 

It  is  a  bootless  labor  to  review  the  place  which  Ameri- 
can bottoms  once  held  in  the  world's  commerce  and  the 
causes  of  their  disappearance.  A  few  paragraphs  will 
suffice  for  a  r^sum^  which  may  serve  as  a  background. 
The  policy  in  the  years  following  the  Revolution  was  to 
encourage  shipping  as  a  national  industry,  and  the  recog- 
nition of  the  value  of  income  from  freights  was  unquali- 
fied. The  differential  tonnage  dues  were  supported  as 
the  means  of  encouraging  the  national  industry  of  ship- 
ping. This  principle  was  fully  established  in  the  mari- 
time reciprocity  treaties  negotiated  in  the  period  from 
1815  to  1828.  In  all  the  controversies  concerning  the 
meaning  of  the  favored-nation  clause  which  grew  out  of 

I  "The  United  States  in  the  Twentieth  Century,"  by  Pierre  Leroy 
Beaulieu:     New  York,  1906. 


f? 


^!t 


142 


AMERICAN  FOREIGN  TRADE 


It! 


I 


m\ 


the  tonnage  dues,  the  United  States  rigidly  held  to  the 
encouragement  of  native  shipping. 

Under  this  policy  the  golden  age  of  the  American  mer- 
chant marine  was  reached  in  the  two  decades  before  the 
Civil  War.  That  was  the  era  of  the  clipper  trade,  and 
the  romance  of  voyages  from  New  York  to  China  and 
back  by  sailing  vesssls  which  reported  their  own  arrival 
in  China  by  returning  to  port  before  any  other  vessel 
from  there  could  return.  The  destruction  of  the  wooden 
ships  during  the  Civil  War  and  the  circumstances  under 
which,  following  the  war,  England  was  able  to  replace 
4merican  ships  on  the  ocean,  first  with  iron  ships  and 
then  with  steel  ones,  are  chapters  so  recent  and  so  con- 
troversial as  not  to  require  recapitulation. 

How  far  England's  deliberate  policy  was  to  prevent 
the  reconstruction  of  the  American  merchant  marine, 
how  far  internal  conditions  in  the  United  States  result- 
ing from  industrial  development  in  interior  cities  af- 
fording better  chances  of  employment  than  the  seaport 
cities,  how  far  the  restrictions  imposed  on  shipbuilding 
in  pursuance  of  the  protective  policy  of  buying  material 
and  employing  labor  at  home,  prevented  the  revival  of 
the  shipping  industry  are  now  purely  speculative  ques- 
tions. The  failure  to  provide  adequate  subsidies  and 
subventions  is  not  entirely  speculative.  The  restora- 
tion  of  the  merchant  marine  through  government  aid  was 
a  blank  chapter.  A  few  mail  subsidies  grudgingly 
granted  had  no  effect  in  the  absence  of  cargo  subsidies. 

Although  the  political  party  that  favored  the  princi- 
ple of  subsidies  was  in  continuous  power  for  twelve  years 
in  the  White  House,  and  for  the  greater  part  of  this 
period  in  both  branches  of  Congress,  it  never  was  able 
to  enact  the  legislation  which  was  considered  essential 


THE  CARGO-CARRIERS  143 

to  the  rebuilding  of  the  American  merchant  marine.  An 
expiring  effort  was  made  during  President  Taft's  admin- 
istration, when  a  bill  granting  a  very  mild  measure  of 
subvention  to  vessels  in  the  South  American  and  Panama 
Canal  trade  was  passed  in  the  Senate  by  the  casting  vote 
of  the  Vice-President,  but  failed  to  get  through  the  House 
of  Representatives. 

After  this  failure  the  prospects  seemed  hopeless;  yet 
this  was  really  the  end  of  the  period  of  discouragement. 
There  was  slow,  but  sure,  recognition  that  something 
must  be  done  to  reestablish  the  American  merchant  ma- 
rine and  at  the  same  time  to  foster  foreign  trade  by  pro- 
viding greater  shipping  facilities.  A  number  of  legis- 
lative and  executive  acts  were  the  evidences  of  this  rec- 
ognition. In  the  Panama  Canal  Act  the  shipping  laws 
were  amended  so  as  to  permit  American  registry  for  for- 
eign-built vessels  owned  by  citizens  of  the  United  States. 
The  provisions  in  regard  to  the  employment  of  sailors 
not  citizens  of  the  United  States  were  also  liberalized. 

Direct  effort  to  utilize  American  shipping  as  a  means 
to  free  trade  or  lower  tariff  was  contained  in  the  Under- 
wood-Simmons Act  of  1913  in  a  provision  granting  a  dis- 
count of  five  per  cent,  in  tariff  dues  on  goods  imported  in 
American  bottoms.  This  was  a  revival  of  the  policy, 
under  another  name,  of  discriminating  duties.  It  was 
similar  to  the  tariff  act  of  July  4,  1789,  which  allowed 
a  discount  of  ten  per  cent,  of  the  duties  upon  imports 
into  the  United  States  in  ships  built  and  owned  by  Amer- 
ican citizens.  This  system  of  discriminating  duties  was 
changed  by  the  act  of  1794,  so  that  instead  of  a  discount 
of  ten  per  cent,  in  favor  of  American  vessels,  a  surtax 
of  ten  per  cent,  was  charged  on  goods  in  foreign  vessels. 
The  difference  was  that  between  encouraging  the  mer- 


.il! 


I  I  ;i 


144  AMERICAN  FOREIGN  TRADE 

chant  marine  by  means  of  protective  duties  or  by  means 
of  duties  designed  to  lower  protection. 

The  Underwood  proposition  was  to  lower  protection. 
When  this  provision  was  pending,  the  diplomatic  repre- 
sentatives of  several  of  the  countries  which  had  treaties 
with  the  United  States  containmg  clauses  to  the  effect 
that  there  shall  be  no  discrimination  in  customs  duties 
on  goods  imported  into  the  respective  countries,  whether 
such  goods  be  imported  in  vessels  of  one  countrj^  or  the 
other,  directed  attention  to  the  treaties.     The  nations 
with  which  the  United  States  had  treaties  containing  this 
stipulation  were  the  Argentine  Republic,  Austria-Hun- 
gary, Belgium,  Bolivia,  Colombia,  Costa  Rica,  Denmark, 
Great  Britain,  Greece,  Honduras,  Italy,  Japan,  Liberia, 
Holland,  Paraguay,  Spain,  and  Norway  and  Sweden, 
Germany  also  claimed  it  under  the  old  treaties  with  the 
Hanseatic  Republic,  Mecklenburg-Schwerin  and  Prussia. 
Notwithstanding  these  remonstrances  and  in  the  face 
of  the  opposition  of  the  Department  of  State,  and  of 
an  opinion  by  the  attorney -general  that  the  discount  pro- 
vision was  in  violation  of  the  treaties,  the  authors  of 
the  bill  insisted  on  retaining  it,  and  it  was  passed  by  a 
partizan  majority.     The  matter  was  taJ^en  to  the  courts, 
and,  when  the  question  reached  the  Supreme  Court,  the 
provision  was  declared  invalid.     This  ended  the  efforts, 
to  revive  the  merchant  marine  through  lowering  tariff' 
duties. 

Genuine  revival  came  through  the  stimulus  of  extraor- 
dinary  profits  in  the  early  stages  of  the  Great  War.  That 
was  when  the  destructiveness  of  the  German  submarines 
began  to  be  felt  and  it  seemed  as  though  the  greater  part 
of  the  tonnage  of  the  Allies  would  disappear.  It  is  a 
stirring  chapter  in  gainful  enterprise,  that  purchase  of 


THE  CARGO-CARRIERS 


145 


old  hulks,  some  of  them  already  under  water,  and  their 
sale  and  operation  at  an  enormous  profit.  Despite  the 
reckless  nature  of  the  business,  few  disasters  due  to  un- 
seaworthiness were  recorded. 

Hostilities,  when  still  limited  to  the  European  bellig- 
erents,  did  something  more  than  to  stimulate  the  old 
hulks  industry.  They  revived  American  shipbuilding  on 
a  scale  never  before  dreamed  of.  The  demand  for  cargo- 
carriers  convinced  capitalists  that  after  peace  came  com- 
petitive conditions  in  world  trade  would  be  such  that 
shipbuilding  could  be  maintained  as  a  permanent  na- 
tional industry.  In  the  meantime  there  was  the  extraor- 
dinary profits  of  the  cargo-carriers.  The  war  boom  was 
characteristically  national  in  its  exuberance.  Muni- 
tions manufacturers  reaped  trifling  profits  on  an  in- 
vestment basis  compared  with  the  profits  of  the  cargo- 
carriers.  In  August,  1914,  the  rate  on  grain  from  New 
York  to  Liverpool  was  four  cents  a  bushel ;  in  the  spring 
of  1917  it  had  risen  to  forty  cents  a  bushel.  Cotton  was 
shipped  to  England  in  1914  at  fifty  cents  a  hundred 
pounds.  In  two  years  the  rate  had  risen  to  four  dollars 
a  hundred  pounds.  All  the  time  the  work  of  construc- 
tion was  pushed  at  a  rate  previously  unheard  of. 

When  the  United  States  declared  a  state  of  war  with 
Germany,  every  shipyard  in  the  country  was  going  for- 
ward at  a  runner's  pace.  The  condition  of  belligerency 
brought  all  the  energies  of  the  Government  and  all  its 
resources  into  the  shipbuilding  industry.  The  emer- 
gency needs  of  the  Allies  had  given  the  initial  impetus. 
The  emergency  needs  of  the  United  States  gave  the  per- 
manent impulse. 

The  country  was  not  without  preparation  for  a  na- 
tional policy.    There  had  been  legislation  based  on  the 


146 


AMERICAN  FOREIGN  TRADE 


THE  CARGO-CARRIERS 


147 


program  of  providing  an  American  merchant  marine  and 
the  extension  of  foreign  trade  by  this  means.  There  also 
had  been  legislation  based  on  humane  motives  which,  it 
was  asserted,  would  interfere  with  the  operation  of  ships 
when  once  built.  A  review  of  the  whole  subject  is  neces- 
sary in  order  to  fix  the  status  of  the  American  merchant 
marine. 

The  recognition  of  the  principle  of  paying  freights  to 
a  nation's  own  people  rather  than  to  foreigners  is  in  con- 
travention to  the  school  of  political  economists,  who  hold 
that  no  artificial  means  should  be  taken  to  foster  ship- 
ping any  more  than  to  foster  domestic  Industry.  The 
theory  is  that  the  only  sound  policy  is  to  buy  cargo  space 
where  it  can  be  bought  most  cheaply,  and  the  assumption 
is  that  with  various  maritime  countries  competing  for 
traffic  the  buyer  will  get  cheaper  transportation  than  if 
he  had  to  buy  it  from  a  national  merchant  marine  built 
up  by  subsidies  or  other  means  of  governmental  encour- 
agement. The  theory  of  absolute  freedom  of  commerce 
thus  exemplified  takes  no  notice  of  the  benefit  of  paying 
these  ocean  freights  to  national  instead  of  to  foreign 
shipping  lines  and  keeping  the  money  in  circulation  at 
home.  Its  repudiation  by  all  political  parties  in  the 
United  States  makes  further  discussion  of  it  unneces- 
sary. 

An  opportunist  national  administration,  nominally 
based  on  Jeffersonian  political  principh^s,  was  the  in- 
strument of  adopting  the  Hamiltonian  theory  of  the  func- 
tions of  the  Government  as  applied  to  the  merchant  ma- 
rine. The  American  people,  despite  theii*  conservatism, 
have  little  reverence  for  political  traditions.  The  con- 
viction had  been  reached  that  something  should  be  done 
to  revive  American  shipping,  and  they  were  indifferent 


whether  or  not  it  was  comformable  to  the  reminiscences 
of  the  Jeffersonian  era.  The  real  difference  of  opinion 
was  regarding  methods. 

The  shipping  legislation  originally  proposed  by  the  ad- 
ministration of  President  Wilson  was  objectionable  to  a 
large  body  of  public  opinion  because  of  its  government- 
ownership  background,  and  not  because  of  its  recogni- 
tion of  the  principle  of  subsidies  or  subventions  under 
another  name.  Able  political  leaders  know  that  when 
a  bad  name  has  been  given  something,  the  object  which 
is  sought  may  be  carried  out  by  changing  the  name. 
Though  there  may  be  some  political  taunts  at  the  re- 
versal of  policy,  good  political  generalship  recognizes 
that  this  is  merely  superficial  and  that  the  public  will 
take  it  good-naturedly  and  not  be  too  censorious  on  the 
change  of  front. 

The  Shipping  Law  enacted  in  1916  was  different  from 
the  form  in  which  it  was  originally  recommended  by  the 
national  administration.  The  opposition  to  government 
ownership  was  so  strong  that  this  proposition  was  aban- 
doned. The  leading  provisions  of  the  law  are  those 
authorizing  the  Shipping  Board  that  was  created  to  have 
constructed  and  equipped,  or  to  purchase,  lease,  or  char- 
ter, vessels  suitable,  as  far  as  the  commercial  require- 
ments of  the  United  States  may  permit,  for  use  as  naval 
auxiliaries  or  army  transports  or  for  other  naval  or  mil- 
itary purposes.  The  board  was  authorized  to  charter, 
lease,  or  sell  vessels  thus  acquired  to  private  persons, 
citizens  of  the  United  States.  An  appropriation  of  f  50,- 
000,000  was  made  for  the  capital  stock  of  a  shipping  cor- 
poration the  majority  of  which  stock  should  be  owned  by 
the  United  States.  At  the  expiration  of  five  years  from 
the  conclusion  of  the  European  War  the  operation  of 


f 


I 


148 


AMERICAN  FOREIGN  TRADE 


THE  CARGO-CARRIERS 


149 


vessels  by  the  corporation  ceases  and  it  is  to  be  dissolved. 
The  Shipping  Board  therefore  may  then  sell,  lease,  or 
charter  the  vessels  acquired. 

The  shipping  corporation  was  formed  with  the  Pan- 
ama Canal  builder,  Gen.  George  W.  Goethals,  at  its  head ; 
but  instead  of  |50,000,000  when  the  United  States  became 
a  belligerent,  Congress  placed  an  additional  |500,000,000 
at  its  disposal,  and  its  work  was  begun  as  a  part  of  the 
military  operations  of  the  Government.  It  superseded 
the  war  activities  of  the  privately  owned  shipping  lines. 

The  half  billion  dollars  was  added  to  with  unstinted 
hand  by  Congress,  and  the  shipbuilding  program  that 
was  entered  upon  was  staggering  in  its  scope.  It  is  not 
necessary  for  the  purposes  of  this  work  to  review  the 
total  cost,  the  billions  that  must  be  written  off,  or  the 
other  details  of  the  program.  What  stands  out  is  tliat 
in  the  midsummer  of  1914,  out  of  a  total  steam  seagoing 
merchant  tonnage  of  41,225,000  gross  tons,  the  United 
States  possessed  2,706,000  gross  tons.  Four  months 
after  the  armistice  was  signed,  with  new  construction  re- 
placing war  losses,  the  total  tonnage  was  approximately 
37,100,00  gross  tons.  The  United  States  possessed  5,- 
500,000  of  this  tonnage.  But  it  also  possessed  the  great- 
est shipbuilding  instrumentalities  of  any  nation  in  the 
world.  ^ 

The  completion  of  the  government  shii)building  pro- 
gram assures  10,000,000  tons.  Judging  from  the  experi- 
ence of  peace  years,  the  world's  commerce  from  1920  on 
requires  approximately  sixty  million  tons.  One  sixth  of 
this  amount  is  not  a  large  percentage,  but  it  is  a  sufficient 
beginning  and  insures  a  reasonable  amount  of  ocean 

1  Report  of  E.  N.  Hurley,  Cniairman,  United  State*  Shipping  Board, 

l.Vi.Om 


freights  and  insurance  in  the  form  of  cash  to  be  kept  at 
home.  The  vital  question  of  the  future  relates  to  the 
conditions  of  competition.  Some  of  these  can  be  deter- 
mined by  the  United  States  itself.  Others  wDl  not  be 
dependent  on  domestic  policy. 

Sharp  controversy  was  developed  over  the  passage  of 
the  Seaman's  Act  in  1915.  It  was  treated  by  some  of  the 
shipping  companies  as  hostile  not  only  to  the  revival,  but 
to  the  continuance  of  the  merchant  marine.  This  was 
principally  on  account  of  the  requirement  that  seventy- 
five  per  cent,  of  sailors  on  any  vessel  should  be  able  to  un- 
derstand English.  Other  provisions  were  alleged  to  give 
foreign  companies  advantages  over  American  companies, 
since  it  was  held  that  they  were  not  subject  to  the  re- 
quirements of  the  act.  It  was  claimed  that  the  expenses 
of  operation  would  be  so  great  under  the  law  as  to  make 
the  continuance  of  steamship  service  unprofitable.  One 
company  actually  decided  to  go  out  of  business,  and  sold 
several  of  its  ships  as  a  preliminary. 

While  the  act  was  open  to  objection,  the  tendency  of 
some  corporations  to  oppose  welfare  legislation  on  in- 
sufficient grounds  was  illustrated  in  this  instance.  The 
Department  of  Commerce,  by  a  possible  stretch  of  execu- 
tive authority,  interpreted  the  law  benignly.  War  con- 
ditions, with  their  soaring  freight  rates  and  the  ability 
of  the  shipping  companies,  out  of  their  enormous  earn- 
ings, to  pay  high  seaman's  wages,  ended  the  uncertainty 
temporarily.  Then  followed  the  complete  government 
control  of  shipping. 

The  Seaman's  Act,  with  its  humane  provisions,  un- 
doubtedly requires  amendment.  But  there  is  no  reason 
to  assume  that  it  can  be  amended  only  by  destroying 
the  humanity  in  it.    The  question  is  one  for  adjust- 


iv 


150 


AMERICAN  FOREIGN  TRADE 


THE  CARGO-CARRIERS 


151 


I'l' 


I 


ment  by  practical  legislators  giving  due  account  to  the 
experience  of  those  who  have  espoused  the  sailor's  cause 
and  to  broad-minded  ship-owners.  The  cost  of  fuel  is 
more  important  than  the  cost  of  labor. 

Respecting  general  policy,  the  reaction  from  govern- 
ment control  and  operation  of  the  railways  destroyed  any 
prospect  that  might  have  existed  of  developing  a  wide- 
spread public  sentiment  for  permanent  government  own- 
ership and  operation  of  the  merchant  marine.  If  the 
Government  were  to  continue  to  own  and  operate  the 
shipping  lines,  the  ownership  and  operation  of  the  rail- 
way lines  would  seem  to  be  tlie  corollary.  Only  in  that 
manner  could  the  full  benefit  of  the  monopoly  of  ocean 
transportation  be  obtained  and  maintained.  Govern- 
ment ownership  and  operation  of  the  merchant  marine 
that  it  has  created  vanishes  with  the  vanishing  of  gov- 
ernment railway  ownership  and  operation.  What  super- 
sedes it  is  vital  to  the  carrying  trade.  After  the  gen- 
eral policy  is  determined,  sui)plemental  legislation  will 
be  necessary,  and  in  the  course  of  years  a  code  of  ship- 
ping legislation  will  be  evolved.  In  the  meantime  the 
United  States  will  be  in  competition  witli  its  greatest 
trade  rival,  and  the  circumstances  under  which  that  com- 
petition will  be  conducted  merit  attention. 

England's  merchant  marine  always  has  been  a  nation- 
alized carrying  trade,  although  not  directly  owned  and 
operated  by  the  Government.  It  will  continue  such, 
probably  with  closer  government  control  than  in  the  past 
and  closer  cooperation  with  the  land  transportation 
lines.  This  will  be  made  possible  by  the  governmental 
control  of  the  railways.  The  limited  territorial  extent 
of  the  United  Kingdom,  and  the  nearness  of  all  commer- 
cial and  industrial  centers  to  the  seaports,  simplifies  the 


coordination  of  land  transportation  and  ocean  transpor- 
tation under  state  direction.  At  the  beginning  of  the 
war  Great  Britain  possessed  19,250,000  gross  tons.  Her 
net  losses  during  hostilities  were  approximately  3,450,- 
000  tons.  Under  peace  conditions  her  shipyards  rapidly 
supplied  the  deficiency.  In  the  year  after  peace  the  Uni- 
ted Kingdom  may  be  said  to  possess  shipping  equivalent 
to  that  which  she  had  at  the  outbreak  of  hostilities. 
Some  of  this  is  enemy  shipping,  and  England's  future 
contribution,  therefore,  may  be  said  to  be  directed  to 
making  up  the  world  deficiency  instead  of  her  own. 

The  French  merchant  marine,  in  the  international 
sense,  may  be  looked  upon  as  supplementing  British  ship- 
ping. France  lost  approximately  a  million  tons  during 
the  war.  This  was  a  heavy  proportion,  since  it 
amounted  to  nearly  forty  per  cent,  of  the  entire  merchant 
fleet.  These  losses  were  partially  compensated  by  turn- 
ing over  enemy  ships.  The  French  shipyards,  after  the 
war,  entered  on  reconstruction,  and  French  shipping 
must  be  considered  in  the  equation  of  the  world's  ship- 
ping ;  but  the  clear  indications  of  cooperation  with  Eng- 
land justify  considering  the  British  and  the  French  mer- 
chant marine  as  allies  in  the  competition  for  world  trade. 
England  starts  with  one  advantage.  This  is  the  posses- 
sion of  the  world's  coaling  stations.  The  strategic  im- 
portance of  these  coaling  stations  cannot  be  overesti- 
mated. Another  advantage  is  her  possession  of  the 
tramp  steamer.  That  is  peculiarly  a  British  sea  institu- 
tion. It  is  a  commercial  fleet  in  itself  and  must  be  reck- 
oned with  in  the  shipping  policy  of  the  United  States. 

In  conclusion,  it  is  clear  that  there  are  both  domestic 
and  international  problems  to  be  solved  in  determining 
the  future  of  the  cargo-carriers  of  the  United  States,  but 


152 


AMERICAN  FOREIGN  TRADE 


their  existence  is  the  chief  thing.  They  are  part  of  the 
American  trade  policy,  and  are  an  essential  element  in 
the  foreign  commerce  of  the  United  States.  The  United 
States,  following  the  thought  of  the  French  economist, 
is  already  regaining  its  old-time  prominence  among  mari- 
time nations.  The  day  has  come  that  marks  the  exten- 
sion of  its  economic  influence  over  a  very  large  portion  of 
the  world.  But  with  many  practical  questions  to  be 
worked  out,  buoyancy  over  the  prospect  should  not  be  al- 
lowed to  expand  into  fl«amboyancy.  The  carrying  trade 
of  the  world  is  not  a  flamboyant  business. 


CHAPTER  XI 

CONTINENTAL  EUROPE  AND  THE  UNITED  STATES 

Vital  economic  changes  —  Factors  in  France's  industrial  reconstruc- 
toin  —  Colonial  commerce  —  Dependence  on  American  capital  —  Fiscal 
relations  with  the  United  States  —  Germany's  subtracted  raw  materials 
—  Melting  away  of  Naumann's  Mid-Europe  dream  —  Past  and  pros- 
pective trade  with  the  United  States  —  Importance  of  copper  and  cot- 
ton —  Austro-Hungarian  remnants  —  Belgium's  rehabilitation  —  Italy's 
territorial  expansion  and  industrial  ambition  —  Import  of  capital  — 
Scandinavian  group  —  Spain  and  other  countries. 


TWO  vital  changes  in  the  map  of  Europe  are  the 
consequence  of  the  Great  War.  Expanded  eco- 
nomic France  is  one  of  them;  contracted  eco- 
nomic Germany  is  the  other.  Geographical  expansion 
and  contraction  is  an  incident  of  both  changes,  but  the 
geographical  alterations  are  not  the  exact  measure  of  the 
economic  modifications.  Boundary  shiftings  in  Mid- 
Europe  relate  more  to  intra-national  trade  than  to  in- 
ternational trade.  In  some  of  the  newly  created  states 
they  have  little  significance  outside  a  limited  region. 

Importation  of  capital,  principally  American  capital, 
is  the  chief  factor  in  the  rehabilitation  of  French  indus- 
try. The  nature  of  the  industries  entering  into  export 
commerce  of  France  is  the  same  that  it  was  before  the 
war.  The  genius  of  the  French  people  as  manifested  in 
industrial  products  will  find  freer  play  in  the  future  be- 
cause there  is  the  assurance  that  these  industries  will 
not  be  interrupted  by  war.  There  is,  moreover,  the  as- 
surance of  the  raw  material  resources  conveyed  in  the 

153 


154 


AMERICAN  FOREIGN  TRADE 


l!lili 


reBtoration  of  the  Lorraine  iron-ore  deposits  and  in  the 
addition  of  the  coal  deposits  of  the  Sarre. 

France  can  go  forward  in  her  industrial  career  with- 
out fear  of  check.  The  restoration  of  the  iron-ore  depos- 
its, and  the  control  of  the  fuel  which  is  necessary  to  their 
utilization,  nevertheless  are  hedged  with  difficulties  that 
make  their  industrial  potency  a  deferred  one.  The  trade 
of  France  before  the  war  was  that  of  a  stationary  popu- 
lation.  The  productivity  of  the  country  was  partly 
limited  because  of  the  slow  growth  of  producers.  The 
Marne,  Verdun,  the  Argonne,  in  their  roster  of  lost  lives 
further  diminish  this  productivity  for  a  decade,  if  not 
for  a  generation.  Yet  there  will  be  progress,  and  grad- 
ually France  will  resume  her  old  position  and  go  be- 
yond it. 

In  the  past  much  of  her  European  trade  was  the  result 
of  loans  to  Russia,  Turkey,  and  the  Balkan  States. 
These  loans  gave  France  participation  in  the  railways 
and  other  industrial  enterprises,  and  assured  the  pur- 
chase of  materials  in  France.  But  greater  than  the 
business  resulting  from  these  investments  was  the  de- 
mand for  the  French  specialties.  They  were  not  depen- 
dent on  anything  but  the  French  artistic  sense.  Cen- 
tral Europe  for  many  years  will  not  be  a  heavy  purchaser 
of  these  specialties,  but  South  America,  the  United 
States,  and  other  countries  which  were  not  affected  by 
the  ravages  of  the  war  will  be  steadily  growing  buyers. 

French  colonial  trade  is  also  likely  to  prove  a  recuper- 
ative force.  Algeria  and  Tunis,  and  even  Morocco,  in 
their  industrial  and  trade  relations  might  be  looked  upon 
as  an  extension  of  the  mainland  of  France.  Their  re- 
sources are  as  yet  only  at  the  threshold  of  development. 

Equatorial  Africa  is  not  of  the  immediate  future,  but 


CONTINENTAL  EUROPE  AND  THE  U.  S.      155 

it,  too,  is  a  recuperative  resource.  Madagascar  is  more 
valuable  in  the  commercial  sense  as  a  tropical  possession 
than  the  French  Congo.  Indo-China  promises  better 
than  either.  The  scattered  overseas  colonies  such  as 
Guadalupe  and  Martinique  in  the  West  Indies,  Tahiti  in 
the  Society  Islands,  are  worth  passing  consideration. 
They  are  items  in  world  trade. 

The  full  extent  of  France's  colonial  possessions  and 
their  economic  value  were  little  appreciated  before  the 
war  except  by  the  students  of  international  economics. 
Yet  they  were  a  cardinal  feature  in  French  policy,  devel- 
oped by  statesmen  who  rejected  the  theory  that  because 
the  French  were  a  home  people  and  not  given  to  emigra- 
tion they  could  not  develop  into  a  colonial  power  such  as 
England.  They  must  be  looked  to  in  the  future  as  a  sus- 
taining source.  It  is  more  than  probable  that  the  tariff 
policy  which  made  their  business  valuable  to  France  will 
be  continued,  especially  since  the  adoption  of  imperial 
preference  by  England.  The  substance  of  this  policy 
was  uniform  tariff  treatment  for  the  principal  colonies, 
although  there  were  some  exceptions.  The  same  general 
tariff  applied  to  the  colonies  as  to  France  herself.  There 
were  no  duties  on  goods  from  the  colonies  imported  into 
France,  and  France  paid  no  duties  on  products  exported 
to  the  colonies. 

The  dependence  of  France  on  American  capital  for  eco- 
nomic rehabilitation  makes  the  commercial  relations  of 
the  two  countries  of  special  significance.  The  nature  of 
the  commerce  is  simple.  It  is  an  exchange  principally 
of  raw  materials  such  as  copper  and  cotton,  food  stuffs 
and  some  forms  of  machinery,  for  articles  of  luxury. 
Champagnes  and  liqueurs,  silks,  fine  textiles,  the  various 
articles  of  personal  adornment  which  gratify  the  culti- 


■M\ 


K.  > 


li 


156 


AMERICAN  FOREIGN  TRADE 


vated  taste  and  uncultivated  vanity,  all  the  great  va- 
riety of  artistic  products  which  add  to  the  refinement  of 
civilization,  were  imported  into  the  United  States. 

In  enacting  tariff  legislation  all  political  organizations 
in  the  United  States  have  favored  the  imposition  of  heavy 
customs  duties  on  luxuries  and  articles  of  superior  qual- 
ity. This  has  made  the  scale  of  duties  applied  to  France 
seem  harsh  as  compared  with  those  on  the  products  of 
other  countries.  France,  in  her  own  view,  was  penal- 
ized for  being  the  most  artistic  nation  in  the  world,  and 
for  having  the  soil  and  climate  that  produced  the  most 
exhilarating  beverages.  When  tariff  legislation  was  un- 
der consideration  France  usually  protested  in  proper 
diplomatic  form  against  the  proposed  duties  as  destruc- 
tive to  French  industry  and  certain  to  cause  decreased 
exports.  Nevertheless,  the  high  schedules  were  imposed, 
and  the  trade  did  not  substantially  decrease.  The  grow- 
ing wealth  of  the  United  States  gratified  itself  by  aug- 
mented purchases  of  champagne  and  silks  and  fine  tex- 
tiles and  artistic  products  generally,  so  that  after  the 
brief  interval  of  uncertainty  which  always  follows  tariff 
readjustment  it  was  disclosed  that  France  was  still  sell- 
ing heavily  to  the  United  States. 

In  the  future,  when  the  French  industries  resume 
their  normal  production,  the  United  States  will  be  a 
more  valuable  customer  than  ever  in  the  past.  National 
prohibition  will  destroy  the  market  that  once  existed  for 
champagnes,  but  with  the  very  large  increase  in  the  num- 
ber of  persons  who  are  able  to  buy  articles  of  luxury  the 
effect  of  this  loss  will  be  only  temporary. 

American  fiscal  policy  will  recognize  the  sfjecial  con- 
ditions of  French  industrial  rehabilitation.  French  fis- 
cal policy  has  not  followed  the  course  of  the  original  sen- 


CONTINENTAL  EUROPE  AND  THE  U.  S.     157 

timental  friendship  for  the  United  States.  It  has  taken 
a  business  view  of  the  trade  relations.  The  protective 
movement  under  M.  Meline's  leadership,  which  culmi- 
nated in  the  high  tariff  of  1909,  while  having  the  special 
purpose  of  the  protection  of  agriculture,  incidentally 
bore  heavily  on  manufactured  products  from  the  United 
States.  In  the  adjustment  of  the  maximum  and  mini- 
mum tariff  administrative  concessions  supplemented 
concessions  on  the  schedules  of  customs  duties,  but  the 
United  States  was  not  granted  the  full  minimum  tariff, 
on  the  ground  that  this  was  devised  with  special  refer- 
ence to  the  commercial  relations  of  France  with  other 
European  countries. 

The  American  Government  recognized  the  reasonable- 
ness of  this  contention.  In  the  future  further  tolerance 
will  unquestionably  be  shown.  As  an  abstract  proposi- 
tion, France  might  be  expected  to  admit  automobiles 
from  the  United  States  at  a  duty  w^hich  would  enable 
manufacturers  to  supply  the  French  market.  But 
France  actually  will  seek  to  restrict  the  importation  of 
American  automobiles  in  order  that  her  own  motor-car 
industry  may  be  built  up,  and  the  United  States  will  not 
complain. 

Germany,  before  the  war,  had  a  foreign  trade  amount- 
ing to  five  billion  dollars.  The  iron  ore  of  Lorraine,  the 
coal  of  the  Sarre,  the  ore  of  Luxemburg,  and  the  ore  and 
coal  of  Silesia  were  the  foundation  of  much  of  this  trade. 
With  these  economic!  units  subtracted,  it  would  be  diffi- 
cult to  estimate  what  foreign  commerce  would  remain 
had  no  other  conditions  been  imposed  by  the  victors ;  but 
with  the  full  terms  imposed  it  is  beyond  the  range  of  esti- 
mate what  the  foreign  trade  of  Germany  may  be  in  1925 
or  1930.     Yet  there  is  the  inescapable  fact  that  Ger- 


I 


1 


^i 


158 


AMERICAN  FOREIGN  TRADE 


many  must  continue  to  be  in  world  trade  if  she  is  to  pay 
her  war  debts  to  the  victors. 

Business  with  continental  Europe  —  that  is,  with 
neighboring  countries  —  will  be  the  normal  means  of 
beginning.  After  that  will  come  the  overseas  trade. 
The  degree  to  which  the  politico-economic  militaristic 
system  developed  this  trade  will  be  tested  in  the  circum- 
stances which  have  eliminated  militarism,  and  which 
have  subjected  the  economic  factors  to  the  control  of 
the  victors.  The  literature  of  the  German  Kartell  and 
of  the  entire  system  was  so  coi)ious  even  before  the  war 
that  its  study  required  abundant  leisure.  During  the 
war  the  tendency  was  greatly  to  exaggerate  the  effect  of 
the  German  policy.  This  was  natural,  but  its  continu- 
ance is  apt  to  give  a  wrong  perspective.  It  may  be  re- 
marked again  that  German  trade  and  industry  were  not 
the  work  of  supermen.  Nor  was  their  growth  entirely 
due  to  a  definite  policy  formulated  by  men  who  planned 
long  years  ahead.  German  foreign  trade  in  the  five-year 
period  immediately  following  Sedan  —  that  is,  from  1870 
to  1875  —  was  about  the  same  as  in  the  period  from  1890 
to  1895. 

When  Germany  precipitated  the  war  then?  had  been 
some  signs  of  a  reaction  from  monarchial  state  socialism 
and  from  the  syndication  of  industries.  The  national- 
ization of  the  coal  mines  had  been  effectively  resisted. 
The  early  period  of  the  war  even  showed  a  determination 
on  the  part  of  some  of  the  industrial  captains  to  oppose 
further  nationalization  after  peace  came.  This  was 
when  it  was  assumed  that  Germany  would  be  victori- 
ous, and  as  one  of  the  results  of  victory  would  proceed 
to  give  expression  to  the  state  as  the  sole  agency  of 
industrial  organization.    Dr.  Gustav  Krupp,  head  of 


CONTINENTAL  EUROPE  AND  THE  U.  S.      159 

the  great  works  at  Essen,  in  a  lecture  delivered  in 
Berlin  warned  against  any  effort  to  nationalize  the  mu- 
nitions industry  after  the  war.  His  views,  while  of 
little  moment  in  Germany  as  a  vanquished  country,  are 
of  interest  to  some  of  the  victorious  countries. 

State  management,  he  held,  might  be  justified  where 
purely  domestic  monopolies  were  possible;  but  where 
they  had  competition  at  home  and  abroad,  the  com- 
plications of  state  control  with  parliament  in  the  back- 
ground must  deprive  any  industrial  undertaking  of  the 
absolute  elasticity  and  freedom  of  movement  essential 
at  a  given  moment.     He  declared : 

When  we  realize  the  hardness  of  the  economic  battle  with 
which  wc  are  inevitably  faced  against  countries  and  peoples 
which  still  find  salvation  in  the  freest  activity  of  their  indi- 
vidual energies,  we  must  all  practice  the  greatest  caution  in 
the  treatment  of  such  fundamentally  economic  questions,  and 
we  must  remind  ourselves  again  and  again  how  easy  it  is 
to  take  a  step  in  the  direction  of  increasing  the  influence  of 
the  State  and  how  difiicult  it  may  be  to  retrace  such  a  step 
however  serious  its  consequences  may  prove  to  be.^ 

The  trade  of  Germany  with  central  Europe  has  found 
some  prophets  who  in  defeat  revert  to  what  was  meant 
to  be  a  marching  song  of  victory.  Notwithstanding 
the  creation  of  new  nations,  they  affect  still  to  see  the 
possibility  of  a  central  Europe  such  as  the  one  which 
excited  their  imagination  in  the  early  period  of  the 
war.  This  was  the  middle-Europe  scheme  of  Friederich 
Naumann.  He  expanded  Fichte's  idea  of  a  self-con- 
tained commercial  state.  As  a  member  of  the  Reich- 
stag he  had  openly  antagonized  the  aims  of  the 
militaristic  group.    As  Pastor  Naumann,  the  social  re- 

1  Extract  from  Berlin  Lecture  quoted  by  London  "  Timet.** 


160 


AMERICAN  FOREIGN  TRADE 


former,  he  had  advocated  the  welfare  of  the  masses 
with  less  of  state  interference  than  characterized  the 
German  system.  The  thesis  promulgated  in  his  book, 
"  Mittel-Europa,"  was  that  the  economic  and  political 
frontiers  of  central  Europe  had  turned  against  France 
after  Sedan,  and  that  the  eastern  frontier  had  been  estab- 
lished by  the  Berlin  Congress  in  1878,  and  the  Austro- 
Hungarian  alliance  in  1879.^ 

Germans,  Magyars,  Poles,  Bohemians,  and  other 
races,  he  explained,  had  not  yet  formed  a  national  type, 
and  central  Europe  was  still  lacking  development  as 
a  national  unit.  On  the  economic  side  it  was  proposed 
that  central  European  commerce  should  l>e  conserved 
by  means  of  the  various  chambers  of  commerce  and 
similar  trade  organizations.  Free  trade  between  Ger- 
many and  Austria-Hungary  was  to  be  provided,  and 
a  joint  policy  was  to  be  adopted  in  regard  to  traffic, 
taxation,  and  international  finance.  After  that  union, 
which  of  course  meant  the  absorption  of  the  dual  king- 
dom by  Germany,  the  expansion  would  cover  the  Bal- 
kans, and  then  Eastward  Ho!  Drag  Nach  Osten  was 
the  sop  to  the  Pan-Germanists  and  the  proponents  of 
the  Bagdad  Railway. 

It  was  claimed  for  Naumann  that  he  was  really  a 
protagonist  of  a  new  form  of  Teutonic  idealism  bas(*d 
on  geographic  unity.  The  Teutonic  imagination  for  a 
time  was  responsive  to  his  suggestions,  and  the  book 
had  enormous  popularity.  But  if  Nauman  really  was 
a  proponent  of  a  new  form  of  idealism,  the  diseased 

1 "  Central  Europe."  A  translation  by  Christobel  M.  Meredith  from 
the  original  German  of  "Mittel  Europa,"  by  Friedrich  Naumann: 
New  York,  1917. 


CONTINENTAL  EUROPE  AND  THE  U.  S.      161 

mind  of  German  scholarship  quickly  gave  a  material- 
istic interpretation  to  his  ideals.  They  were  discussed 
in  the  aspect  of  expanding  Germany's  commercial  in- 
fluence. The  popular  appeal  of  the  book,  as  well  as 
the  appeal  to  the  diseased  scholastic  mind  was  largely 
due  to  its  tribute  to  Teutonic  egotism. 

The  geographic  unity,  of  which  Naumann  dreamed, 
is  destroyed  by  the  new  states  that  have  been  set  up. 
The  national  type  to  be  formed  of  Germans,  Magyars, 
Poles,  Bohemians,  and  other  races  is  denationalized 
by  the  effort  to  conform  the  races,  so  far  as  practi- 
cable, to  geographic  lines. 

Yet  some  ideas  in  Naumann's  book  survive. 
Though  geographical  unity,  as  the  basis  of  a  Teutonic 
mid-European  state,  is  unrealizable,  geographic  con- 
tiguity assures  a  definite  amount  of  trade.  Propin- 
quity counts  for  the  exchange  of  products.  Nearness 
assures  markets.  Germany,  in  the  heart  of  central 
Europe,  has  many  products  with  which  she  is  able  to 
supply  her  neighbors.  This  is  the  first  step  in  getting 
ready  for  the  foreign  trade  that  means  overseas  trade. 

In  the  period  before  the  war  trade  relations  between 
the  United  States  and  Germany  showed  a  very  decided 
balance  in  favor  of  the  United  States.  The  German 
Empire  was  principally  a  purchaser  of  raw  materials, 
and  cotton  and  copper  were  the  chief  commodities  im- 
ported. The  United  States  supplied  substantially  all 
the  cotton  and  much  of  the  copper,  along  with  some 
semi-finished  products  which  became  the  raw  materials 
of  German  finished  products.  At  the  outbreak  of  hos- 
tilities the  exports  from  the  United  States  to  Germany 
were  |332,000,000  annually,  and  the  imports  from  Ger- 


m 


162 


AMERICAN  FOREIGN  TRADE 


many  $189,000,000.  The  imports  were  chiefly  textiles 
and  chemicals  and  dyes,  although  there  was  a  large 
range  of  miscellaneous  commodities. 

The  United  States  received  favored-nation  treatment, 
having  the  benefit  of  the  conventional  tariff  rates.  This 
concession  was  secured  during  the  adjustment  of  the 
maximum  and  minimum  tariff,  the  arrangement  in  force 
up  to  that  time  having  been  one  in  which  many  American 
products  were  discriminated  against.  After  granting 
the  conventional  rates,  Germany,  in  making  a  new  treaty 
with  Sweden,  failed  to  give  a  few  American  products, 
among  them  some  rubber  goods  and  crucible  steel,  the 
new  rate,  but  this  did  not  affect  the  general  principle. 

What  remains  of  the  German  Empire  still  requires 
cotton  and  copper  from  the  United  States.  Although 
copper  for  the  electrical  industries  might  be  obtained 
elsewhere,  at  premium  prices,  economically  Germany 
cannot  afford  to  make  the  attempt.  The  great  German 
metal  syndicate,  with  headquarters  at  Frankfort,  which 
dominated  the  metal  markets  of  the  world  and  enabled 
Germany  to  buy  metals  cheaper  than  in  the  countries  of 
production,  is  dead,  never  to  be  revived.  Germany, 
therefore,  will  have  to  buy  copper  on  the  same  terms  as 
other  countries,  but  this  in  itself  is  not  an  economical 
disadvantage. 

American  cotton  is  absolutely  essential  to  the  German 
textile  industries.  The  importation  of  these  two 
products,  cotton  and  copper,  is  therefore  the  basis  of 
the  future  trade  relations  between  the  United  States 
and  Germany.  What  Germany  will  send  to  the  United 
States  in  return  for  them  is  one  of  the  unsettled  prob- 
lems.    She  will  not  be  able  to  send  chemicals  and  dyes, 


III 


CONTINENTAL  EUROPE  AND  THE  U.  S.     163 


and  the  probability  is  that  she  will  have  a  larger  balance 
of  trade  against  her  than  in  the  past. 

Austria-Hungary  was  not  a  notable  factor  in  the  trade 
between  the  United  States  and  central  Europe.  The 
total  commerce  both  ways  rarely  reached  f40,000,000. 
The  exports  consisted  of  hops,  magnesite,  which  is  the 
material  used  in  lining  furnaces,  chinaware,  and  artistic 
products,  such  as  Bohemian  glass.  The  imports  were 
principally  raw  materials,  such  as  cotton  and  copper 
and  tobacco  for  the  government  tobacco  monopoly. 
Some  agricultural  implements  were  also  imported, 
chiefly  for  the  wheat-fields  of  Hungary. 

Bohemia  supplied  the  greater  part  of  the  exports  to 
the  United  States  and  the  new  Czecho  Slovak  state,  of 
which  Bohemia  is  the  principal  part,  therefore  will  be 
the  real  trade  factor  in  the  partitioned  Hapsburg  Em- 
pire. 

Belgium  receives  a  slight  addition  to  her  territory 
under  the  peace  settlement,  but  it  adds  little  to  the 
martyred  country's  economic  resources.  Belgium's 
marvelous  industrial  organization  had  enabled  her  to 
build  up  a  foreign  commerce  approximating  a  billion 
seven  hundred  and  fifty  million  dollars.  Though  the 
imports  exceeded  the  exports  by  a  quarter  of  a  billion, 
there  was  actually  not  an  adverse  balance  of  trade,  be- 
cause a  part  of  the  imports  were  distributed  to  other 
European  countries.  The  nature  of  the  commerce  was 
largely  one  of  exchanging  manufactured  products  for 
food  products  and  raw  materials  of  industry. 

Some  of  these  Belgian  industries,  such  as  the  manu- 
facture of  glass,  competed  with  American  industries, 
and  when  Belgium  was  in  the  grip  of  Germany  several 


164 


AMERICAN  FOREIGN  TRADE 


glass  factories  sprang  up  in  the  United  States  in  order 
to  meet  the  demand  previously  supplied  by  Belgium. 
The  trade  with  the  United  States  was  ai)proximately 
a  hundred  and  ten  million  dollars,  with  the  exports  ex- 
ceeding the  imports  by  forty  per  cent.  It  may  be  many 
years  before  Belgian  industries  are  fully  reconstructed, 
but  that  this  will  be  done  in  time  is  a  certainty,  and  the 
country  will  therefore  continue  an  excellent  market. 

Italy  is  one  of  the  victor  countries  in  which  the  eco- 
nomic expansion  is  not  likely  to  be  commensurate  with 
the  territorial  expansion.  The  Austrian  Tyrol,  Tren- 
tino,  and  the  shores  of  the  Adriatic  that  are  conceded 
under  the  peace  settlement,  have  no  great  productivity. 
They  add  little  to  the  natural  resources  except  as  may 
be  required  for  domestic  consumption.  Notwithstand- 
ing the  gratification  of  the  national  aspirations  and  the 
encouragement  to  national  ambitions,  Italy  continues 
lacking  in  natural  wealth.  The  new  Italy  requires  cot- 
ton, copper,  coal,  and  mineral  oils  for  her  industries, 
just  as  did  the  old  Italy.  The  probability  is  that  these 
will  be  needed  in  much  larger  quantities  than  formerly, 
because  industrial  development  will  be  one  of  the  chaj)- 
ters  of  the  national  political  development.  Nationalis- 
tic sentiment  will  tend  to  national  industries,  and  fiscal 
and  economic  policies  are  likely  to  be  molded  in  accord- 
ance with  these  aspirations. 

Cotton  for  the  textile  industry  will  be  imported  in 
increased  quantities.  The  silk  industry  alone  has  the 
raw  material  at  hand.  Wool  for  the  woolen  mills  comes 
principally  from  abroad.  The  production  of  flax  is  not 
sufficient  for  the  linen  industry,  although  it  is  a  valuable 
domestic  raw  resource.  The  same  statement  may  be 
made  of  jute.     Hemp  furnishes  a  native  raw  material 


CONTINENTAL  EUROPE  AND  THE  U.  S.     165 

for  threads  and  textiles  and  cordage,  with  a  surplus  for 
export. 

Raw  silk  is  Italy's  principal  export  product,  along 
with  fruits  and  edible  oils.  The  quantities  are  not  suf- 
ficient to  assure  a  trade  equilibrium,  but  they  are  enough 
to  provide  a  satisfactory  commercial  movement.  The 
likelihood  is  that  Italy  in  the  future  will  need  to  import 
capital  as  much  as  raw  material  in  order  to  carry  out 
her  projects  of  industrial  development.  Machinery  will 
be  her  essential  element  in  the  importations  for  new  in- 
dustries. Much  of  the  capital  will  be  supplied  by  the 
United  States.  The  United  States  will  be  a  very  im- 
portant agent  in  supplying  industrial  fuel.  The  trade 
relations  of  the  two  countries  will  have  something  like 
a  spontaneous  rapprochement. 

The  Scandinavian  countries  and  Holland  formed  a 
neutral  group  during  the  war.  Their  geographical  situ- 
ation exposed  them  both  to  Germany  and  to  England. 
At  the  same  time  it  enabled  them  to  supply  food  and 
to  draw  legitimate  profits  from  both  sets  of  belligerents. 
This  they  did  without  prejudice  to  their  own  interests. 
All  these  countries,  while  they  suffered  inconveniences, 
were  made  richer  by  the  war,  Sweden  and  Holland  per- 
haps to  the  greatest  extent,  and  then  Denmark  and 
Norway.  They  have  no  vast  war  debts  to  pay  the  in- 
terest on,  and  they  have  no  ravages  of  war  to  be  re- 
paired. 

The  relation  of  the  United  States  to  the  Scandinavian 
group  and  to  Holland  in  the  peace-after-war  is  not  likely 
to  be  different  from  what  it  was  during  the  peace  before 
the  war.  The  United  States  will  continue  to  sell  Hol- 
land wheat  and  other  foodstuffs,  and  some  manufac- 
tured commodities  for  the  consumption  of  the  Dutch 


i} 


Bi   !" 


166 


AMERICAN  FOREIGN  TRADE 


people.  Holland,  however,  may  not  receive  the  full 
geographical  advantage  of  transit  trade  that  she  enjoyed 
in  the  past,  since  the  quantity  of  manufactured  products 
exported  to  Holland  ports  for  distribution  throughout 
central  Europe  is  likely  to  be  diminished. 

The  Scandinavian  countries  receive  from  the  United 
States  raw  wheat,  flour,  and  other  cereal  foods  which 
they  do  no£  produce  in  sufficient  quantities  for  their  own 
use.  They  also  receive  mineral  oils  and  co])per.  From 
them  the  United  States  obtains  principally  wood  pulp 
and  special  products.  This  is  the  normal  trade  relation, 
which  is  not  likely  to  be  altered. 

Switzerland  is  an  isolated  economic  unit  in  the  heart 
of  central  Europe.  From  the  United  States  Switzerland 
bought  food  products  and  raw  materials  of  industry, 
principally  cotton.  In  exchange  she  sent  the  cotton 
fabricated  into  fine  textiles  and  various  articles  of  ar- 
tistic workmanship.  That  is  the  trade  of  the  future 
as  it  was  of  the  past. 

The  Iberian  Peninsula  is  a  group  unit  isolated  from 
the  rest  of  Europe,  and  in  overseas  routes  not  so  greatly 
isolated  from  the  United  States.  Portugal's  exports  in 
the  past  were  chiefly  cork  and  wines.  National  pro- 
hibition destroys  the  market  for  wine  and  reduces  that 
for  cork-wood.  Yet  Portugal  will  require  some  products 
from  the  United  States.  She  will  pay  for  them  in  cash 
obtained  from  the  sale  of  her  products  to  other  countries. 
Spain's  commerce,  present  and  prospective,  is  worthy 
of  attention  across  the  Atlantic.  Her  exports  of  wines, 
olive  oils,  and  fruits  have  enabled  her  to  maintain  a 
favorable  balance.  She  needs  American  coal  and  cotton, 
and  a  large  variety  of  manufactured  articles,  especially 
iron  and  steel  products.     She  needs  also  American  capi- 


CONTINENTAL  EUROPE  AND  THE  U.  S.     167 

tal,  which  goes  into  her  railways  and  public  utility 
enterprises.  This  means  the  purchase  of  material  in 
the  United  States. 

In  the  larger  sense  continental  Europe  should  be 
viewed  as  a  whole.  Enlarged  France,  diminished  Ger- 
many, newly  made  central  European  states,  the  Scan- 
dinavian countries,  and  the  Iberian  peninsula,  are  all 
to  be  viewed  in  world  trade  with  the  United  States  as 
a  potent  factor  in  their  commercial  relations. 


i' 

'  i 


-4i 


ml' ! 


CHAPTER  XII 

RUSSIA  AND  THE  NEAR  BAST 

Constantinople  as  an  international  mart  — The  Black  Sea  a  world 
lake  —  Jugo-Slavia  and  the  Adriatic  —  Bulgaria  and  Rumania  — No 
Balkan  customs  union  —  Greater  Greece  —  American  enterprise  in  Tur- 
key—Russian economic  units  — Survey  of  the  whole  —  Commerce  of 
the  past  — Trade  relations  with  the  United  States  —  Territorial  sub- 
traction—Agricultural and  mineral  resources  that  remain  —  Siberia's 
status  —  Foreign  capital  the  hope  of  the  future. 

CONSTANTINOPLE,  as  a  consequenee  of  the 
Great  War,  becomes  a  world  mart.  The  new 
American  merchant  marine  brings  the  United 
States  to  this  mart.  The  two  forces  react  one  upon  the 
other.  The  balance  of  power  in  the  near  East  was  once 
described  as  the  flaming  sword  on  the  road  to  Byzan- 
tium. The  balance  of  power,  as  an  economic  element, 
disappears.  The  sword  no  longer  flames.  It  is  tem- 
pered and  sheathed.  The  bar  to  commercial  progress, 
because  of  political  rivalries,  is  removed.  Yet  in  the 
commerce  of  the  future  the  United  States  may  prove  an 
unbalancing  power  to  European  trade  expectations. 

Constantinople,  no  longer  the  pawn  of  European 
powers  nor  the  prize  of  the  world  in  Napoleon's  sense, 
takes  its  rightful  place  as  the  gateway  to  an  interna- 
tional commerce  that  is  not  confined  to  the  Old  World. 
Freer  Constantinople,  neutralized  and  internationalized, 
is  the  recognition  of  the  historic  city  of  the  Bosporus  as 
the  inlet  and  outlet  of  the  Balkans  as  well  as  of  the 
Black  Sea,  and  the  tributary  region  of  southern  Russia 

168 


RUSSIA  AND  THE  NEAR  EAST 


169 


and  Asia  Minor.  But  it  is  more.  It  is  a  world  entrepot 
freed  from  the  dead  hand  of  the  Turk. 

England,  among  commercial  nations,  has  most  cause 
to  rejoice  at  this  outcome.  When  the  Trepoff  Treaty 
of  1915  was  made  public,  with  the  full  acknowledgment 
by  the  Entente  allies  that  Constantinople  was  to  become 
Russian  territory,  the  knowledge  was  accepted  gloom- 
ily, but  as  one  of  the  necessary  consequences  of  the  alli- 
ance with  the  great  European-Asiatic  power  which  for 
the  time  had  held  the  German  military  machine  in  check. 
Yet  there  were  forebodings  of  the  future  and  of  the  de- 
gree to  which  the  freedom  of  commerce  of  the  near  East 
might  be  hampered  under  the  domination  of  the  czars. 
The  foreboding  melted  away  with  the  vanishing  of  Rus- 
sia as  a  single  power. 

Under  the  new  conditions  the  Black  Sea  becomes  a 
world  lake  instead  of  a  Russo-Turkish  lake.  There  is 
the  Balkan  back-wash,  but  there  is  also  the  assurance 
of  free  ports  for  other  regions.  Freedom  for  the  United 
States,  with  its  merchant  marine  in  the  ports  of  the 
Black  Sea  as  in  the  open  oceans,  is  likewise  guaranteed. 
There  is  all  this  for  England,  too,  and  also  the  Dan- 
ubian  inlet,  with  the  large  volume  of  British  commerce 
borne  through  it.  Before  the  war  this  was  more  than 
half  the  total  Danubian  trade. 

The  new  map  of  the  near  East  does  not  radically 
change  the  nature  of  the  trade  of  that  extensive  region. 
Notwithstanding  the  political  boundary-line,  there  is  no 
distinct  European-Asiatic  frontier  in  its  commerce. 
The  opportunities  for  business  are  not  dependent  on 
racial  and  linguistic  lines,  and  they  are  in  some  measure 
independent  of  the  conflicts  which  are  indicated  by  geo- 
graphical boundary-lines. 


170 


AMERICAN  FOREIGN  TRADE 


m 


Jugo-Slavia  both  as  to  its  resources  and  its  trade 
is  principally  an  Adriatic  question,  notwithstanding 
Serbia's  outlet  to  the  ^gean  Sea.  No  Austria  will  ever 
again  be  able  to  coerce  Serbia  politically  by  blocking 
exports  overland.  No  more  "  pig  "  treaties,  under  which 
Serbia  was  forced  to  make  humiliating  political  conces- 
sions in  return  for  the  privilege  of  getting  her  small 
stock  of  surplus  farm  products  to  other  markets,  will 
be  celebrated.  Jugo-Slavia,  as  a  w  hole,  is  less  a  farming 
region  than  Serbia  as  a  part  of  the  new  state,  though 
the  principal  resources  of  the  new  nation  are,  neverthe- 
less, agricultural,  and  the  trade  will  be  that  of  an 
agricultural  country.  The  surplus  farm  products  are 
to  be  exported,  and  farm  implements  and  other  manu- 
factured commodities  to  be  bought  in  return.  Some  rail- 
road building  will  be  necessary,  and  some  minor  Indus- 
trial enterprises  w^ill  start  up.  For  these  foreign  capital 
will  be  required,  and  the  country  which  furnishes  the 
capital  will  get  the  bulk  of  the  resultant  trade. 

Diminished  Bulgaria,  notwithstanding  the  territorial 
contraction  imposed  by  the  peace  settlement,  still  has 
considerable  resources.  These  are  principally,  but  not 
entirely,  agricultural.  The  product  best  known  to  the 
world,  attar  of  roses,  is  not  an  unimportant  element  in 
international  trade,  but  there  are  abundant  resources 
of  production  in  Bulgaria.  After  political  readjustment 
the  tendency  will  be  to  develop  these  resources,  and 
again  it  will  be  a  question  of  foreign  capital. 

Rumania,  territorially  and  in  natural  wealth,  as  a 
result  of  the  war  becomes  thi^  most  important  of  the 
Balkan  States.  The  oil-wells,  notwithstanding  that 
several  years  are  required  to  restore  them  from  the 
German  destruction,  have  lost  none  of  their  j)roductive 


/.■ 


RUSSIA  AND  THE  NEAR  EAST 


171 


capacity.  It  is,  however,  in  Rumania's  grain-fields  that 
the  greatest  natural  asset  lies.  The  reapportioned  ter- 
ritory is  partly  wheat  territory,  and  this  adds  to  the 
quantity  of  cereals  which  Rumania  will  have  for  supply- 
ing Europe's  food  market.  Agricultural  machinery  will 
continue  to  be  among  the  leading  imports,  but  there 
will  also  be  a  large  variety  of  other  manufactured  com- 
modities. Rumania  potentially  and  actually  is  the  most 
favored  region  of  the  Balkans  for  the  countries  which 
seek  markets  abroad.  The  assurance  of  an  outlet 
through  the  Black  Sea  is  moreover  a  guaranty  of  na- 
tional progress. 

The  remnant  of  Turkish  territory  left  in  Europe  is 
principally  agricultural.  It  may  be  viewed,  however, 
in  the  economic  and  commercial  sense  as  a  part  of  the 
Balkan  region.  Its  trade  might  be  added  to  or  sub- 
tracted from  any  of  the  Balkan  countries  without  in- 
convenience. 

The  project  of  a  Balkan  customs  union  to  unite  the 
countries  economically,  while  they  preserve  their  politi- 
cal identity,  though  a  sound  one,  does  not  come  within 
the  realm  of  early  probabilities.  Racial  and  religious 
antagonisms  are  too  pronounced,  and  political  antipa- 
thies too  strongly  developed  to  hold  out  such  a  prospect. 
But  in  the  broadest  sense  the  whole  Balkan  region  may 
be  treated  as  one  market,  and  also  it  may  be  viewed  as 
a  single  field  for  the  investment  of  foreign  capital. 

The  tendency  in  the  past  has  been  to  view  the  trade 
relations  of  the  Balkans  as  essentially  European.  Geog- 
raphy supports  this  view.  But  geography  is  not  con- 
clusive. American  farm  machinery  always  has  had  a 
good  market  in  the  agricultural  districts,  and  other 
manufactured    commodities    have    not    been    without 


172 


AMERICAN  FOREIGN  TRADE 


RUSSIA  AND  THE  NEAR  EAST 


173 


markets.  The  trade  that  was  obtained  was  despite  the 
difficulties  of  transportation,  and  the  settled  practice 
of  buying  through  London  and  Hamburg.  American 
ships  plying  directly  between  the  Atlantic  and  gulf 
ports  and  the  Black  Sea  ports  overcome  this  handicap. 
They  also  furnish  a  direct  market  for  the  relatively  few 
commodities  that  the  Balkans  have  for  export  to  the 
United  States,  and  insure  the  increase  in  trade  which 
always  follows  direct  transportation  facilities. 

Greater  Greece  offers  a  larger  market  for  the  products 
of  the  United  States  and  also  seeks  a  larger  market  for 
her  own  products.  Greece  finds  an  excellent  demand 
in  the  United  States  for  currants,  olives,  tobacco,  and 
other  agricultural  products,  as  well  as  for  line  marble. 
She  is  a  customer  of  the  United  States  for  coal,  raw 
cotton,  petroleum,  edible  oils,  and  miscellaneous  manu- 
factured articles.  She  is  also  a  borrower,  an<l  one  means 
of  amortizing  her  loans  is  by  the  sale  of  her  products 
abroad.  She  is  moreover  an  investment  field,  and  the 
capital  invested  in  industrial  enterprises  seeks  material 
in  the  United  States. 

Asiatic  Turkey  is  both  Black  Sea  and  Mediterranean 
trade  territory.  One  portion  of  this  territory  has  a 
special  relation.  That  is  Asia  Minor.  The  so-called 
spheres  of  influence  in  Syria  had  a  distinct  significance 
in  international  commerce  before  the  war.  The  signifi- 
cance is  much  less  now,  because  the  European  countries 
which  arranged  the  spheres  among  themselves  have  not 
the  capital  to  carry  on  the  railroad  building  and  other 
enterprises  that  were  the  basis  of  the  Turkish  conces- 
sions. The  United  States  has  the  capital.  It  also  has 
the  steamship  facilities  for  the  direct  traffic  to  Beirut 
Smyrna,  Adalia,  and  Alexandretta,  which  are  the  gate- 


ways to  the  interior.  These  are  the  signs,  or  the  map- 
pointers,  which  indicate  a  greater  share  for  the  United 
States  in  the  commerce  of  this  region. 

In  its  widest  application,  the  future  trade  influence 
of  the  United  States  in  the  near  East  is  dependent  on 
loans  and  investments.  Loans  by  the  Government  of 
the  United  States  to  Serbia,  Greece,  and  Rumania  in 
their  totality  have  not  been  large,  but  they  have  given 
the  country  a  definite  stake  in  the  orderly  political  and 
industrial  development  of  the  whole  near  East.  The 
question  of  the  future  is  how  far  this  situation  will 
induce  private  capital  to  venture  into  large  construc- 
tive enterprises. 

During  the  old  regime  of  Turkey  one  such  experiment 
was  tried.  It  was  at  the  period  when  everything  de- 
pended on  Turkish  concessions,  and  the  sultan  was  not 
chary  of  granting  concessions.  The  troubles  which  the 
concessionaries  might  have  with  those  who  had  obtained 
previous  concessions  did  not  concern  him.  In  1911  an 
American  syndicate,  with  a  capital  of  fifty  million  dol- 
lars, was  organized.  It  had  extensive  plans  of  railway 
construction,  public  works,  and  kindred  developments. 
Considerable  resources  were  opened  to  it  for  exploita- 
tion. For  a  time  the  project  seemed  likely  to  succeed, 
and  a  new  market  to  be  created  for  material  from  the 
United  States.     Then  the  blow  fell. 

The  hand  of  Germany  was  stretched  forth,  and  the 
American  syndicate  was  blocked  at  every  turn.  The 
Bagdad  Railway  was  not  in  reality  endangered  by  the 
American  plans,  but  Germany  would  have  no  competi- 
tion from  across  the  Atlantic.  Diplomatic  representa- 
tion and  protests  made  to  the  German  Government  were 
met  with  cynical  denials  of  Germany's  responsibility. 


174 


AMEKICAN  FOREIGN  TRADE 


Berlin  had  no  knowledge  that  its  famous  ambassador 
at  Constantinople  was  interfering.  Certainly  the  Ger- 
man Government  had  not  instructed  him  to  interfere. 
And  so  on.  Compared  with  his  success  in  blocking  Brit- 
ish enterprises  in  Asiatic  Turkey,  his  killing  off  Ameri- 
can enterprise  was  child's  play ;  but  his  work  was  effec- 
tive. Financial  disaster  overtook  the  American  capi- 
talists, and  ultimately  they  took  their  loss  and  withdrew. 

This  experience  would  not  be  repeated  under  the  new 
conditions,  but  the  knowledge  of  it  still  lingers,  and  is 
likely  to  make  American  capitalists  hesitant.  Yet  there 
is  no  more  inviting  field  for  investments  abroad  than  in 
the  near  East,  and  there  is  none  which  may  be  made 
with  greater  benefit  to  the  peoples  of  those  countries. 
Though  it  may  be  slow,  American  capital  will  yet  find 
its  way  to  Constantinople,  and  the  trade  of  the  United 
States  with  the  near  East  will  be  visibly  increased.  De- 
mand will  be  enhanced  for  industrial  as  well  as  for 
agricultural  machinery,  oil-motors  and  tractors,  hard- 
ware, machine  tools,  electrical  supplies,  enginc^ering 
equipment,  railway  material,  automobiles,  oflfice  appli- 
ances, flour,  cotton-seed  oil,  cotton  goods,  and  miscel- 
laneous merchandise.  The  general  trade  will  grow 
with  the  elimination  of  London  and  Hamburg  as  middle- 
men, and  the  establishing  of  Constantinople  as  an  Amer- 
ican distributing  headquarters,  with  direct  steamship 
service  to  and  from  New  York. 

The  Russia  of  the  past  covered  more  than  a  seventh 
of  the  land  surface  of  the  whole  world.  Its  population 
exceeded  170,000,000  inhabitants.  Its  resources  were  sm 
varied  as  were  the  climate  and  soil  of  a  territory  so  im- 
mense. The  developed  resources  were  chiefly  agricul- 
tural, but  ancillary  to  these  were  the  fisheries,  the  fur- 


RUSSIA  AND  THE  NEAR  EAST 


175 


bearing  animals,  and  the  forests.  There  were  also  the 
mineral  deposits  —  iron,  coal,  manganese,  oil,  and  the 
precious  metals. 

In  1914  approximately  194,000,000  acres  were  given 
over  to  the  production  of  bread  cereals,  principally 
wheat  and  rye;  more  than  43,500,000  acres  to  oats;  and 
8,000,000  to  potatoes.  In  1915  the  entire  area  of  these 
agricultural  products  was  323,340,000  acres.  In  addi- 
tion there  were  4,500,000  acres  of  maize  and  28,500,000 
acres  of  barley.  In  quantitative  terms  the  production 
of  wheat  was  24,800,000  short  tons ;  of  rye,  25,475,000 ; 
of  oats,  14,359,000;  and  of  potatoes,  24,838,000.  The 
mineral  wealth  comprised  the  oil-fields,  second  only  to 
the  United  States  in  production;  the  manganese  of  the 
Caucasus  region,  exceeding  the  combined  output  of  In- 
dia and  Brazil;  and  the  iron  and  coal  of  the  basin  of 
the  Don.^ 

A  glimpse  of  the  whole  as  an  economic  unit  by  far 
the  greatest  in  the  world  is  thus  given  in  order  to  judge 
the  prospects  of  what  remains  after  huge  regions  are 
subtracted  from  the  whole.  In  passing  it  may  be  said 
that  old  Russia  really  comprised  a  score  of  economic 
units.  Out  of  these,  treated  as  a  block,  was  evolving 
the  economic  and  commercial  policy  of  the  Russia  that 
during  the  first  two  years  of  the  war  was  the  savior 
of  England  and  France.  This  policy  in  its  inception 
was  the  work  of  a  single  brain,  that  of  Count  Sergius 
Witte. 

The  national  economic  policy  of  protection  was  initi- 
ated under  autocratic  government.    Witte  and  the  pro- 

1  For  an  instructive  and  comprehensive  survey  of  the  resources,  trade, 
and  industry  of  the  former  empire,  see  "  Russia,  Special  Consular  Re- 
ports No.  61,  Department  of  Commerce,"  Washington,  1913.  See  also 
"  The  Russian  Year-Book,"  London,  1915. 


m 


li^m 


i 


f. 


176 


AMERICAN  FOREIGN  TRADE 


RUSSIA  AND  THE  NEAR  EAST 


177 


gressive  Russian  statesmen  of  his  school  saw  in  it  the 
genesis  of  a  new  national  life.  The  foundation  was  the 
development  of  home  industries  by  high  duties  on  manu- 
factured articles  and  raw  material  which  the  country 
itself  was  able  to  produce.  The  plan  was  so  directed, 
for  example,  that  foreign  manufacturers  of  agricultural 
implements  and  electrical  equi|>ment  found  it  advisable 
to  establish  branch  plants,  or  what  were  nominally 
branch  plants,  in  Russia.  Essentially,  they  were  domes- 
tic industries.  The  textile  mills  of  Warsaw  and  Mos- 
cow, the  chemical  factories  of  Lodz,  were  evolved  as 
protected  industries.  The  commercial  policy  was  not 
the  direct  corollary  of  the  economic  policy,  since  foreign 
trade  was  not  its  leading  motive.  Trade  treaties  were 
negotiated  under  the  dual  tariff  system  similar  to  that 
of  Germany,  with  the  unconditional  construction  of  the 
favored-nation  clause. 

Russia  prospered  under  its  economic  system.  In  1913 
the  total  foreign  trade  was  in  round  numbers  a  billion 
and  a  half  dollars.  The  imports  were  in  excess  of  |707,- 
000,000,  while  the  exports  approximated  |783,000,000. 
By  far  the  larger  part  of  this  commerce  was  that  of 
Russia  in  Europe.  This  ranged  as  to  exports  from 
ninety  to  ninety-one  per  cent.,  and  as  to  imports  from 
eighty-three  to  eighty-five  per  cent.  Finland,  which, 
notwithstanding  partial  autonomy,  was  counted  as  a 
part  of  the  empire,  was  credited  with  about  four  per 
cent,  of  both  exports  and  imports.  Asiatic  Russia 
provided  twelve  per  cent,  of  the  importations  and  six 
per  cent  of  the  exportations. 

Germany  had  the  lion's  share  of  the  Russian  trade. 
The  year  before  hostilities  broke  out  the  imports  from 
the  German  Empire  amounted  to  47.5  per  cent,  of  the 


total,  or  a  fraction  under  |336,000,000.  Some  of  these 
imports  were  not  of  Teutonic  origin,  but  Hamburg  had 
the  middleman's  profit  out  of  them.  On  her  part,  Ger- 
many imported  commodities  from  Russia,  principally 
agricultural  products  which  did  not  compete  with  her 
own,  to  the  amount  of  $233,000,000,  or  approximately 
thirty  per  cent,  of  the  total  Russian  exports.  Propin- 
quity accounted  for  part  of  this  commerce,  which  was 
border  trade.  This  circumstance  usually  is  overlooked 
in  discussing  Germany's  commercial  overlordship  of 
Russia. 

Statistics  furnish  no  trustworthy  measure  of  the  ac- 
tual trade  between  the  United  States  and  the  Russian 
Empire  in  the  period  before  the  war.  This  is  because 
of  the  large  quantities  of  merchandise  which  were  tran- 
shipped chiefly  through  Germany,  though  some  of  the 
transhipments  were  made  at  Mediterranean  ports. 
American  consular  investigations  provided  convincing 
evidence  that  the  statistics  were  unreliable  by  demon- 
strating that  in  a  single  year,  when  the  figures  showed 
importations  of  cotton  valued  at  |10,000,000,  the  actual 
importations  exceeded  |50,000,000.  In  addition  to  raw 
cotton,  Russia  imported  from  the  United  States  agri- 
cultural implements  for  primary  use  and  semi-finished 
parts  for  the  factories  that  were  established,  railway 
equipment,  and  much  miscellaneous  machinery.  The 
United  States  took  from  Russia  raw  wool,  hemp,  flax, 
hides  and  skins,  fuel  oil,  licorice-root,  and  manganese 
ore. 

The  United  States  was  able  to  maintain  its  trade  with 
Russia  under  the  absolutist  government  during  a  situ- 
ation which  was  fraught  with  grave  possibilities  of 
interruption.     The  diplomacy  of  President  Taft's  ad- 


1 


lit    < 


178 


AMERICAK  FOREIGN  TRADE 


RUSSIA  AND  THE  NEAR  EAST 


179 


ministration,  by  forestalling  a  congressional  resolution, 
avoided  international  offense  when  the  treaty  between 
Russia  and  the  United  States  was  abrogated  by  the 
action  of  the  Executive  because  of  Russians  discrimina- 
tion against  the  Jews.  The  abrogation  of  this  treaty, 
while  in  response  to  popular  s<»ntiment,  left  the  United 
States  without  grounds  for  asking  a  continuance  of 
the  conventional  tariff  of  Russia,  which  placed  it  on 
the  same  footing  with  other  nations. 

Through  the  diplomacy  exerted  by  Secretary  Knox, 
Russia  continued  this  treatment  under  a  device  of  her 
own,  although  there  w^as  a  strong  demand  among  the 
bureaucratic  classes  for  retaliation  by  discriminating 
against  American  products.  When  the  czar's  govern- 
ment was  overthrown,  the  American  Ambassador  was 
instructed  to  negotiate  a  commercial  treaty  with  the 
provisional  government  that  took  its  place,  and  later 
the  negotiations  might  have  been  carried  on  with  the 
Bolsheviki  succession  had  not  the  nature  of  that  move- 
ment made  negotiations  impossible.  In  consequence, 
there  is  no  American  trade  treaty  with  Russia  which 
would  be  effective  with  any  of  the  fragments  of  the  czar's 
empire. 

Future  trade  relations  of  some  kind  must  be  estab- 
lished, but  whether  with  a  central  Russia  or  with  several 
separated  units  only  time  can  determine.  This  is  as 
true  of  other  countries  as  of  the  United  States.  Some 
of  the  principal  subtractions  from  the  Russia  that  was 
are  undoubtedly  permanent.  Poland  comprises  one  of 
the  separate  economic  units.  Ritssian  Poland  formerly 
sent  flax  and  other  agricultural  products  to  the  United 
States.  The  flax  is  still  needed.  The  cotton-mills  of 
Warsaw  were  largely  dependent  on  American  raw  cot- 


ton. They  have  the  assurance  of  that  product  in  the 
future.  The  loss  of  Poland  is  to  Russia  the  loss  of 
the  principal  industrial  unit.  Only  Moscow  rivaled 
Warsaw  as  a  manufacturing  center. 

Other  elements,  territorially  speaking,  are  separable, 
and  separated  themselves ;  but  there  is  the  prospect  that 
they  may  some  day  become  parts  of  a  federalized  Russia. 
The  Ukraine  is  by  far  the  most  important  of  these  dis- 
tricts, although  the  whole  Black  Sea  region  might  be 
included.  The  black  soil  of  the  Ukraine  furnished  the 
bulk  of  the  wheat  that  was  raised  for  export,  and  wheat 
shipments  made  Odessa  a  seaport  rivaling  Buenos  Aires. 

The  basin  of  the  Don,  with  its  extensive  coal  deposits 
and  iron  ore,  gives  the  district  adjoining  the  Ukraine 
an  industrial  potency  that  insures  the  development  of 
an  iron  and  steel  industry  of  considerable  proportions. 
The  metal  industry  was  on  a  solid  foundation  when  the 
Great  War  came.  Russia  had  even  shipped  steel  rails 
to  India,  but  it  is  still  a  question  of  the  future  as  to 
what  political  unit  will  control  this  economic  unit. 
The  district,  geographically,  does  not  require  to  be 
separated  from  Russia  proper.  Yet  there  is  the  Black 
Sea  outlet,  with  the  separatist  status  of  the  Ukraine  to 
offset  this  geographical  relation. 

The  Caucasus,  with  its  manganese  deposits,  is  the 
richest  mineral  region  yet  exploited  in  Russian  terri- 
tory. It  may  adhere  to  the  old  Russia,  or  it 
may  disregard  the  mountain  barrier  and  unite  with 
Transcaucasia.  This  presupposes  that  Georgia  and 
Russia-Armenia  form  a  single  political  government. 
The  economic  resources  of  the  Transcaucasian  region 
are  more  a  part  of  Armenia  than  of  Georgia.  They 
are  really  the  Caspian  region,  for  Baku  is  the  great 


I" 


J 


4< 


180 


AMERICAN  FOREIGN  TRADE 


oil-producing  district.  It  was  here  that  Marco  Polo  ob- 
served the  fountain  of  oil  which  discharged  so  great  a 
quantity  as  to  furnish  loading  for  many  camels,  and 
which  was  also  good  for  burning,  so  that  p(»ople  came 
from  distant  parts  to  procure  it  for  their  lamps.  Five 
and  a  half  centuries  have  not  lessened  to  the  people  of 
that  region  the  value  of  the  oil  observed  by  the  Venetian 
traveler,  but  its  uses  have  extended  far  beyond  the  neigh- 
boring country,  and  it  has  become  a  world  commodity. 

Siberia,  both  geographically  and  politically,  may  be 
viewed  as  one  of  the  prospective  subtractions  from  Rus- 
sia. Economically,  it  is  not  so  easy  to  delimitate  the 
frontiers  of  European  Russia  and  Asiatic  Russia,  not- 
withstanding the  existence  of  the  Ural  Mountains.  The 
dairy  products  of  western  Siberia  find  their  market  in 
Europe.  When  the  iron-  and  coal-mines  are  developed, 
they,  too,  may  be  looked  upon  as  European.  The  gold- 
mines are  too  widely  scattered  to  be  assigned  to  either 
section  to  the  exclusion  of  the  other.  But  while  the 
dividing-line  may  not  be  exactly  determined,  Siberia 
as  a  geographical  and  political  entity  looks  toward  the 
Pacific.  Omsk  may  one  day  become  the  capital  of  a 
Pacific  nation  wholly  separated  from  European  Russia. 
Vladivostok  already  is  linked  with  San  Francisco  and 
Seattle. 

The  field  is  too  speculative  for  satisfactory  efforts  to 
determine  what  will  happen  to  the  separated  Russian 
units.  Yet  whether  there  be  a  federalized  Russia  or  a 
series  of  unfederated  states,  there  will  still  be  the  im- 
mense territory  that  was  once  the  Russian  Empire,  with 
vast  resources  to  develop  and  with  an  immeasurable 
foreign  trade  in  prospect.  Some  of  the  units  may  con- 
tinue to  get  along  under  the  Soviets,  and  modified  Bol* 


RUSSIA  AND  THE  NEAR  EAST 


181 


shevikism  may  prevail.  Others  may  reject  the  scheme 
entirely,  build  up  a  social  organization  on  the  old  basis, 
and  secure  recognition  as  nations.  But  whether  in- 
dustrial socialism  obtains  in  some  parts,  or  whether  it 
collapses  entirely,  the  economic  conditions  will  not  be 
changed. 

Questions  will  arise  whether  certain  of  the  regions 
which  are  erected  into  sovereignties  or  semi-sovereignties 
will  continue  as  mere  sellers  of  farm  products  and  buy- 
ers of  manufactured  commodities,  or  whether  they  will 
work  up  their  raw  materials  into  semi-manufactured 
products  that  will  bring  higher  prices  than  the  primary 
materials.  It  is  a  question  whether  a  portion  of  the 
grain  of  the  Ukraine  will  be  made  into  flour  for  export, 
or  whether  the  whole  crop  will  be  exported  as  wheat. 
The  problem  will  present  itself  whether  to  utilize  a 
larger  proportion  of  the  iron  ore  and  manganese  in 
the  development  of  iron  and  steel  industries  with  the 
coal  available,  or  whether  the  raw  minerals  shall  be 
exported  without  reference  to  their  value  in  domestic 
industry.  The  question  will  arise,  too,  whether  it  is 
better  to  supply  other  countries  with  manufactured 
lumber  or  with  rough  timber,  and  whether  a  larger  pro- 
portion of  hides  and  skins  be  employed  in  leather  and 
kindred  industries.  In  some  of  the  agricultural  regions 
the  feasibility  of  feeding  a  larger  quantity  of  grain  to 
the  native  cattle  and  raising  beef  for  export  will  have 
to  be  tested. 

Whatever  policies  may  be  determined  by  the  separated 
or  the  reunited  units,  there  are  still  the  immense  natural 
resources  that  will  have  to  be  developed  in  the  natural 
progress  of  civilization.  Some  of  the  factors  in  deter- 
mining these  questions  cannot  be  settled  entirely  from 


I 


i 


I 


1' 


182 


AMERICAN  FOREIGN  TRADE 


within.  Chief  among  these  is  that  of  foreign  capital. 
Much  of  the  big  foreign  debt  which  Russia  incurred 
was  dissipated  by  the  corrupt  tmreaucracy.  Neverthe- 
less, the  Transsiberian  Railway  was  built,  other  rail- 
ways were  constructed,  and  some  of  the  loans  negotiated 
under  Witte  were  utilized  in  very  solid  forms  of  in- 
dustrial development.  The  threatened  repudiation  of 
these  debts  by  the  Bolsheviki  is  a  passing  incident.  In 
the  end,  Russia,  or  the  subtracted  and  the  remaining 
parts  of  Russia,  will  pay. 

This  will  be  the  invitation  for  foreign  ca]>ital  again 
to  enter  Russia.  When  this  invitation  comes  in  this 
form,  the  status  of  Russia  in  world  trade  will  again 
become  definite.  The  years  may  be  many  before  this 
occurs,  and  they  may  be  few ;  but  the  outcome  is  certain. 
Economic  reconstruction,  which  must  supplement  agri- 
cultural production,  cannot  come  solely  from  within. 
Russia  must  adjust  her  system  of  production  and  dis- 
tribution to  the  rest  of  the  world,  whatever  political 
vagaries  she  may  show. 


CHAPTER  XIII 

ECONOMIC  SOUTH  AMERICA 

The  Southern  Continent  a  world  market  —  Export  taxes  a  Spanish 
colonial  inheritance  —  Limited  resources  for  manufactures  —  Agricul- 
tural and  mineral  products  the  source  of  purchas^g  power  —  Brazil's 
rubber  and  coffee  —  Iron  ore  and  manganese  —  Decentralized  fiscal  pol- 
icy—Argentina's grain  and  live-stock  —  Lack  of  minerals  —  Uruguay 
and  Paraguay  —  Chile's  copper  and  nitrates  —  Protective  tariflf  tend- 
encies—  Peru's  varied  products  —  Protective  and  export  duties  —  Bo- 
livia and  Ecuador  —  The  Caribbean  region. 

SOUTH  America  is  the  most  inviting  commercial 
field  that  the  world  has  to  offer.  It  is  the  only 
'  great  region  which  actually  may  be  regarded 
as  neutral  trade  territory  under  the  conditions 
that  govern  the  new  era.  As  the  most  promising 
market  in  all  the  world,  inevitably  it  becomes 
the  field  of  strenuous  competition.  Before  it  can 
be  understood  as  a  market,  it  must  be  compre- 
hended as  an  economic  block,  and  with  knowledge  of  the 
economic  policies  of  the  several  countries  that  constitute 
the  block. 

Description  of  the  different  regions  of  the  Southern 
Continent  and  their  productive  resources  shows  little  de- 
viation from  the  economic  status  of  the  sixteenth  century 
to  that  of  the  twentieth  century.  The  colonial  era  was 
the  record  of  the  trade  monopolies  of  Spain  and  Portu- 
gal. These  monopolies  were  the  reflex  of  the  age ;  they 
were  common  to  all  the  European  countries  which  had 

183 


1^: 


'I 


■  H. 


184 


AMEEICAN  FOEEIGN  TEADE 


overseas  possessions.  The  buccaneers  and  the  pirates, 
who  were  tolerated  and  protected  by  their  home  govern- 
ments, were  the  effective  means  of  modifying  the  trade 
monopolies. 

The  economic  history  of  Spain  in  South  America  re- 
volved around  the  West  Coast  and  the  Caribbean  region. 
On  the  Atlantic  coast,  Portugal,  with  her  BraTdlian  pos- 
sessions, was  the  colonial  power.  The  region  tributary 
to  the  Plate,  with  its  agricultural  wealth,  was  little 
valued.  It  was  administered  by  the  Spanish  viceroys 
from  their  seat  of  authority  in  Peru. 

The  economic  policy  of  Spain,  with  its  basis  rooted 
in  commercial  monopoly,  looked  only  to  the  exploitation 
of  the  precious  metals.  When  Pizarro,  with  his  hardy 
horde  of  greedy  adventurers,  swept  through  the  Inca 
empire  of  Peru,  agriculture  was  the  prized  art  of  the 
natives,  and  gold  was  the  earth's  product  which  offered 
no  temptation.  Under  the  Spaniards,  mining  became 
the  prime  pursuit,  if  not  the  primal  necessity.  It  was 
the  same  in  Brazil.  After  the  Paulist  Fathers  discov- 
ered gold  in  the  river-beds  agriculture  was  abandoned  by 
the  Portuguese  colonists  and  by  the  Government. 

When  the  Spanish  colonies  achieved  their  indepen- 
dence in  the  opening  years  of  the  nineteenth  century, 
and  later  when  Brazil  became  an  independent  monarchy, 
trade  was  liberalized,  especially  as  regarded  shipping; 
but  it  was  inevitable  that  there  should  be  some  inherit- 
ance of  the  Spanish  and  the  Portuguese  policies.  The 
tax  on  exports  was  one  of  these  inheritances.  Benjamin 
Franklin  held  that  it  was  defiance  of  all  sound  principles 
of  economy  for  a  nation  to  tax  exports  going  from  its 
own  shores,  but  the  experience  of  the  Southern  countries 
has  not  confirmed  his  contention.     The  policy  has  not 


ECONOMIC  SOUTH  AMEEICA 


185 


lessened  the  market  abroad  for  their  products.  It  is 
simply  an  element  in  economic  South  America  consid- 
ered apart  from  the  productive  element.  It  does  not 
lessen  the  value  of  the  Southern  Continent  as  a  world 

market. 

Nature  has  not  endowed  the  Southern  Continent  with 
the  variety  and  propinquity  of  products  which  would 
enable  it  to  become  an  extensive  manufacturing  region. 
The  bulk  of  its  resources  are  agricultural  and  mineral 
wealth  very  unevenly  distributed.     The  tropical  agri- 
cultural products,  particularly  coffee,  cacao,  fruits,  and 
rubber,  furnish  other  parts  of  the  world  with  raw  ma- 
terials for  the  consumption  of  human  beings  and  of  in- 
dustries.    The  cereals  and  beef,  the  wool  and  mutton, 
produced  in  the  temperate  regions  are  a  certain,  though 
limited,  source  of  supply  of  food  and  clothing.     The 
nitrates  of  soda,  despite  scientific  advance  in  extracting 
this  rich  fertilizing  element  from  the  air  by  artificial 
means,  will  continue  to  nourish  the  world's  farming. 
Silver  and  gold  will  serve  for  use  in  the  arts  and  in 
adding  to  the  specie  needed  for  commerce,  but  none  of 
these  products  in  itself  provides  the  basis  for  manu- 
factures. 

Where  iron  ore  deposits  exist  in  huge  quantities,  as 
in  Brazil,  coal  is  lacking,  so  that  the  basic  iron  and 
steel  industries  are  not  practicable.  The  copper  and 
tin  of  the  Andes  regions  are  valuable,  if  not  indispens- 
able, for  the  industries  of  other  continents,  but  they 
are  not  so  situated  as  to  develop  the  industries  of  the 
Southern    Continent.     The    combination    of    resources 

which  provide  both  tropical  and  temperate  foodstuffs 
for  distant  populations  and  raw  materials  for  industry 
is  what  assures  South  America  vast  purchasing  power. 


>*WM#W^ 


186 


AMERICAN  FOREIGN  TRADE 


The  lack  of  other  raw  materials  of  industry,  and  the 
geographical  obstacles  to  assembling  such  as  exist,  re- 
quire that  the  major  part  of  this  purchasing  power  shall 
be  expended  overseas. 

South  America,  therefore,  is  to  be  considered  as  an 
economic  block  which  responds  in  some  measure,  al- 
though with  limitations,  to  the  doctrine  of  the  classical 
political  economists  that  nations  possessing  abundant 
raw  materials  should  be  content  with  the  exchange  of 
their  products  for  manufactured  commodities.  This  is 
the  situation  which  causes  the  Southern  Continent  to  be 
treated  as  a  unit  in  its  relation  to  world  trade,  not- 
withstanding that  the  various  republics  acting  in  their 
own  spheres  have  adopted  national  fiscal  systems  that 
look  to  the  development  of  their  domestic  industries. 

The  population  of  the  South  American  countries  does 
not  exceed  fifty  million  inhabitants,  and  much  of  this 
is  an  aboriginal  population,  with  small  capacity  for 
consumption.  Yet  the  purchasing  power,  as  is  shown 
by  an  examination  of  the  foreign  trade  of  the  leading 
countries,  is  very  high  per  person.  In  the  totality  it 
is  treble  that  of  the  Chinese  Empire,  with  upward  of 
350,000,000  inhabitants.  Moreover,  there  is  the  cer- 
tainty of  increase  in  the  number  of  consumers  through 
immigration.  This  increase  will  come  much  more 
slowly  than  the  rhetorical  bombast  of  Pan-American 
orators  would  indicate.  Nevertheless,  there  are  vast 
regions  capable  of  colonization,  and  it  is  inevitable  that 
these  regions  gradually  be  filled  by  a  producing  and 
consuming  population.  The  total  growth  in  a  decade, 
or  even  in  a  generation,  through  immigration  may  not 
be  marked,  yet  the  movement  is  a  steady  one.     This  is 


'M 


ECONOMIC  SOUTH  AMERICA 


187 


why  commercial  nations,  in  turning  to  South  America  as 
a  market,  look  beyond  the  immediate  prospect. 

In  order  fully  to  understand  South  America  as  an 
economic  block,  it  is  necessary  to  pass  in  rapid  review 
the  natural  resources  of  the  different  regions  and  the 
fiscal  policies  of  the  several  countries.  Physical  and 
political  geography  come  before  commercial  geography. 
In  a  broad  way,  as  relates  to  commerce,  the  continent 
may  be  divided  into  three  regions.  These  are  the  east 
coast,  extending  from  the  Amazon  to  the  Strait  of  Ma- 
gellan; the  west  coast,  stretching  from  Panama  to  the 
straits ;  and  the  Caribbean  Coast,  extending  from  Pan- 
ama to  the  Guianas. 

The  east-coast  group  is  by  far  the  most  important 
considered  with  reference  to  area,  population,  and  to 
variety  and  extent  of  natural  resources.  It  includes 
Brazil,  Uruguay,  the  Argentine  Republic,  and  the  in- 
terior country  of  Paraguay,  which  has  fluvial  and  rail 
transportation  to  seaboard. 

The  vastness  of  Brazil  is  a  fascinating  theme,  but  in 
describing  the  territorial  extent,  it  is  enough  to  say 
that  it  comprises  a  larger  area  than  is  comprised  in  the 
continental  area  of  the  United  States.  The  two  prin- 
cipal sources  of  export  wealth  are  rubber  and  coffee. 
The  natural  rubber  of  the  Amazon  is  unsurpassed.  The 
Brazilian  product  constitutes  one-fourth  of  the  world's 
total  supply.  The  wide  fluctuations  in  price  make  it 
impracticable  to  give  a  definite  estimate  of  the  real  value 
of  rubber  to  Brazil.  In  1906  crude  rubber  brought  f3.00 
a  pound;  in  1911  sixty-six  cents  a  pound.  It  is  recog- 
nized that  in  the  future  the  Brazilian  product  must 
compete  with  the  cultivated  rubber  of  the  Malay  Straits, 


188 


AMERICAN  FOREIGN  TRADE 


which  can  be  produced  at  a  price  much  lower  than  the 
rubber  of  the  Amazon  can  be  gathered  and  marketed. 
Yet  the  Amazon  rubber  has  certain  qualities  that  make 
it  distinct  from  the  plantation  rubber.  There  is  no 
reason  to  assume  that  as  a  national  asset  it  is  seriously 
threatened  with  extinction  by  the  competition  of  the 
cultivated  product  of  the  Straits,  though  the  percentage 
of  comparative  production  may  continue  to  fall,  and  pro- 
gressive reduction  in  the  export  tax  may  become  im- 
perative. 

The  Brazilian  berry  is  the  world-dominating  factor 
in  coffee  production.  A  study  of  the  statistics  shows 
how  true  this  is.  Almost  any  year  that  may  be  taken 
will  show  the  Brazilian  crop  to  range  at  from  seventy 
per  cent,  upward  of  the  worhi  crop.  The  capacity  of 
Brazilian  territory  for  coffee-growing  is  almost  limit- 
less.  The  practical  question  always  has  been  and  al- 
ways will  be  how  to  avoid  over-production,  so  as  to 
assure  profitable  prices.  There  can  be  no  doubt  as  to 
BraziPs  primacy  in  the  coffee  market  of  the  world, 
and  the  purchasing  power  which  it  gives  her. 

Cocao,  or  the  chocolate  bean,  is  another  source  of 
tropical  agricultural  wealth  to  Brazil.  It  is  compara- 
tively small  when  placed  beside  coffee,  yet  it  is  a  com- 
fortable asset.  The  world's  production  of  cacao  never 
gets  much  beyond  the  demand,  and  the  fluctuations  in 
price  are  not  wide. 

^  Sugar  and  cotton  are  produced  in  considerable  quan- 
titles,  but  both  these  products  are  utilized  chiefly  fop 
home  consumption,  and  are  the  basis  of  domestic  Indus- 
tries.  The  development  of  the  live-stock  industry  in  the 
temperate  regions  of  the  South  promises  a  definite  ad- 
dition to  the  quantity  of  hides  available  for  export.     It 


ECONOMIC  SOUTH  AMERICA 


189 


also  may  mean  meat  products  for  oversea  as  well  as 
for  home  consumption. 

Brazil's  principal  mineral  resources,  aside  from  some 
gold  and  the  diamond  deposits,  are  iron  ore  and  man- 
ganese. The  hematite  deposits  in  the  State  of  Minas 
Geraes  are  conjectured  to  contain  12,000,000,000  tons. 
The  beds  lie  from  four  hundred  to  five  hundred  miles 
back  from  the  coast.  Technical  experts  who  have 
studied  them  have  no  doubt  of  their  commercial  value. 
They  are  one  of  the  great  ore  reserves  of  the  world, 
but  they  lack  means  of  exploitation  as  the  foundation  of 
a  national  iron  and  steel  industry  because  of  the  want 
of  coal.  A  few  widely  scattered  carbon  deposits,  suit- 
able for  local  domestic  and  industrial  purposes,  have 
been  tested,  but  there  is  no  coal  available  in  quantities 
which  could  be  assembled  for  blast-furnaces. 

The  Brazilian  Government  has  studied  various  plans 
for  bringing  the  iron  ore  to  the  coast  and  trans- 
porting coal  overseas,  so  as  to  insure  the  utilization  of 
the  ore  in  domestic  industries;  but  the  project  hardly 
can  be  said  to  give  promise  of  developing  a  national 
iron  and  steel  industry  in  the  near  future.  In  conse- 
quence, the  manganese  ores,  which  are  extensive  and 
easily  transported  to  seaboard,  will  continue  to  be 
shipped  abroad,  and  add  to  Brazil's  buying  power. 

The  natural  resources  having  been  studied,  the  fiscal 
and  economic  policy  of  Brazil  can  be  comprehended 
after  an  understanding  is  reached  of  the  political  system. 
The  several  States  are  held  together  almost  as  loosely 
as  were  the  North  American  colonies  under  the  Confed- 
eration after  the  Revolution.  There  is  a  centralized 
government,  and  in  some  respects  the  federation  is  a 
strong  one  in  whatever  concerns  the  national  life;  but 


190 


AMERICAN  FOREIGN  TRADE 


\mf 


at  the  same  time  the  different  States  revolve  in  economic 
and  fiscal  spheres  of  their  own.  The  central  Govern- 
ment collects  the  customs  taxes  and  has  various  sources 
of  internal  revenue. 

Export  taxes  are  the  fruitful  sources  of  income,  and 
these  are  laid  by  the  States,  except  on  the  rubber  which 
is  exported  from  the  territory  of  Acre.  Coffee,  which 
is  the  great  national  asset,  yields  nothing  to  the  central 
Government.  The  export  tax  is  collected  and  applied 
to  their  own  uses  by  the  coffee-producing  States  of  San 
Paulo  and  Rio  de  Janeiro.  An  export  tax  on  cacao  is 
levied  by  Bahia,  where  the  bulk  of  it  is  produced.  Other 
States  impose  export  taxes  on  their  products.  Some 
of  these  levies  are  so  extreme  as  to  defeat  their  own 
purpose.  An  American  scientist  once  noted  that  rose- 
wood and  mahogany  logs  were  used  for  firewood  on  the 
locomotives  of  the  northern  railways  because  the  export 
duty  was  so  high  that  it  was  not  profitable  to  ship  them 
abroad. 

The  States  encourage  local  industries  by  bounties  and 
subsidies  in  various  forms,  but  the  encouragement  of 
domestic  industries  in  their  entirety  is  recognized  as 
the  function  of  the  Federal  Government.  Brazil  has 
a  national  policy  in  this  respect,  and  it  is  the  policy  of 
high  protection.  The  methodical  German  tariff -makers, 
who  had  occasion  to  study  the  Brazilian  schedules  in 
relation  to  their  conventional  tariff,  declared  that  analy- 
sis showed  the  Brazilian  scale  of  duties  to  be  the  highest 
of  any  country  in  the  world.  Many  of  the  duties  are 
so  absurdly  high  as  to  defeat  their  own  purpose,  but 
some  of  them,  such  as  the  impost  on  cotton  and  woolen 
goods,  unquestionably  have  stimulated  the  native  in- 
dustries. 


ECONOMIC  SOUTH  AMERICA 


191 


The  Brazilian  tariff  in  practice  is  subjected  to  con- 
siderable modification  through  the  wide  latitude  allowed 
in  its  administration,  and  through  the  authority  given 
the  executive  in  the  annual  budget  law  of  the  Congress 
to  make  further  modifications.  iJevertheless,  in  the 
fiscal  sense,  Brazil  must  be  viewed  in  its  relation  to 
world  trade  as  a  protective  tariff  country  which  also 
lays  heavy  export  taxes  on  virtually  all  the  natural 
products  that  are  shipped  abroad.  Consumption  taxes 
are  levied  on  tobacco,  beverages,  salt,  boots  and  shoes 
and  other  articles. 

The  Argentine  Republic,  with  an  area  of  1,250,000 
square  miles,  is  to  be  considered  internationally  as  one 
of  the  world's  grainfields  and  live-stock  pastures. 
Wheat  is  the  permanent  source  of  purchasing  power, 
supplemented  by  maize,  linseed,  and  other  crops,  and 
by  beef,  mutton,  and  wool.  Drouth  and  locusts  in  some 
years  limit  the  income  derived  from  the  grain  crops, 
but  an  average  may  be  struck  for  a  given  period  with 
some  degree  of  certainty. 

The  beef  and  mutton  supply  was  one  of  the  sources 
of  Argentina's  very  rapid  development  as  a  commercial 
nation.  It  was  for  a  while  the  principal  factor  in  the 
dazzling  growth  of  the  foreign  commerce.  In  the  last 
year  of  the  last  century  9,000  tons  of  frozen  beef,  valued 
at  less  than  f  1,000,000,  were  exported.  Ten  years  later 
there  were  181,000  tons,  valued  at  |18,000,000.  Other 
live-stock  products  showed  proportional  increases. 

The  wool  clip  has  been  a  continuously  advancing 
source  of  national  wealth.  Notwithstanding  the  con- 
tinued extension  of  grain-growing  and  some  advance 
in  mixed  farming,  which  encroach  on  the  sheep-pasture 
areas,  there  is  no  reason  to  expect  that  for  years  to 


\ 


192 


AMERICAN  FOREIGN  TRADE 


ECONOMIC  SOUTH  AMERICA 


193 


come  the  wool  crop  will  be  a  diminishing  factor  In  the 
national  wealth. 

It  is  these  agricultural  exports  which  give  the  Argen- 
tine Republic  so  large  a  purchasing  power  per  capita  — 
in  some  years  as  much  as  fifty  dollars  —  and  which 
enable  her,  in  the  international  turnover,  to  have  so 
large  a  balance  to  meet  the  payment  on  government  loans 
incurred  for  public  improvements,  and  to  remit  the  divi- 
dends on  railways  and  other  securities  in  which  foreign 
capital  has  been  invested. 

While  Argentina  has  vast  agricultural  wealth,  nature 
has  been  niggardly  in  her  gift  of  the  mineral  resources 
that  are  necessary  to  the  development  of  national  in- 
dustries. There  is  no  iron  ore  within  the  extensive 
limits  of  the  country.  No  coal  has  yet  been  discovered 
except  some  isolated  deposits  along  the  Andean  wall. 
Copper  deposits  in  the  foot-hills  of  the  Andes  and  in 
the  extension  of  the  Atacama  mineral  region  of  Chile 
have  little  economic  significance.  Petroleum  deposits, 
discovered  within  recent  years  in  Patagonia,  are  of  un- 
doubted value  as  sources  of  fuel  supply.  The  produc- 
tion has  reached  a  million  barrels  annually.  The  gov- 
ernment measures  to  conserve  and  exploit  them  assure 
that  they  will  not  be  wasted,  but  at  the  most  all  that 
they  can  be  counted  on  to  do  is  to  serve  as  a  means  of  re- 
ducing the  annual  fuel  bill  previously  paid  out  for  im- 
ported coal.  The  commercial  possibilities  of  the 
Salta-Jujuy  district  in  the  north  and  of  the  Mendoza- 
Nequen  field  along  the  eastern  slope  of  the  Andes  have 
not  yet  been  proved. 

It  will  be  seen  from  this  brief  survey  that  Argentina 
is  near  to  meeting  the  ideal  conditions  imagined  by  the 
political  economists  of  the  classical  school,  that  of  ship- 


ping natural  products  abroad  and  taking  manufactured 
commodities  in  exchange  without  seeking  to  develop  do- 
mestic industries.  Yet,  where  the  opportunity  offers, 
the  protective  policy  is  followed.  The  sugar-growing  in- 
dustry in  the  warm  region  of  the  North  has  been  fostered 
by  protective  duties.  Agitation  for  encouraging  leather 
and  woolen  manufactures  also  has  received  support 
Knit  goods  has  become  a  promising  industry. 

In  her  fiscal  system  as  a  whole,  however,  the  Argentine 
Republic  recognizes  the  economic  situation  created  by 
the  nature  of  her  resources.  The  mass  of  the  revenues 
collected  are  from  customs  duties  on  articles  of  wide- 
spread consumption.  Export  duties  were  imposed  for 
a  period  after  the  financial  crisis  of  1890  and  then  aban- 
doned. The  Congress  of  1917  authorized  the  executive 
to  reimpose  them  on  quebracho,  or  tanning  extract, 
frozen  meats,  cattle,  wool,  hides,  linseed,  and  some  other 
commodities,  and  this  was  done. 

Uruguay's  chief  source  of  national  wealth  in  relation 
to  purchasing  power  abroad  is  in  live-stock  products. 
The  cereals  are  not  grown  in  excess  of  the  domestic 
needs.  Hides  and  wool,  mutton,  beef,  and  beef  extract 
are  the  principal  exports.  Economically,  they  may  be 
said  to  supplement  the  similar  exports  of  Argentina. 
Uruguay  has  a  distinctive  national  policy,  which  looks 
mainly  to  the  stimulating  of  the  agricultural  industries. 
The  greater  part  of  the  revenues  is  collected  from  import 
duties. 

Paraguay,  a  thousand  miles  up  the  Plate,  in  the  sense 
of  world  commerce  is  chiefly  to  be  considered  with  refer- 
ence to  live-stock.  Hides  are  the  principal  commodity 
exported.  They  are  also  the  principal  source  of  revenue, 
since  an  export  duty  is  levied  on  them.     Paraguay  has 


i! 

■  'i 


7 


194 


AMERICAN  FOREIGN  TRADE 


great  possibilities  for  the  live-stock  industry  and  is  one 
of  the  South  American  reserves  for  future  population 
to  be  obtained  through  colonization  rather  than  by 
natural  increase. 

The  west-coast  group  of  countries,  in  the  sense  of 
mineral  production,  are  the  treasure  bed  of  the  Andes, 
but  account  also  must  be  had  of  their  agricultural 
wealth.  Chile,  in  foreign  commerce,  takes  the  lead,  due 
partly  to  her  possession  of  the  nitrate  of  soda  or  salt- 
peter beds.  These  whitish-yellow  desert  areas,  them- 
selves incapable  of  nourishing  a  blade  of  grass,  when 
their  surface  is  broken  and  the  lower  strata  treated  by 
a  simple  evaporating  process,  furnish  exports,  in  quan- 
tity approximating  3,000,000  tons  annually. 

It  was  the  belief  of  scientists  until  recently  that 
Chile's  great  source  of  natural  riches  gradually  was 
drawing  to  a  close  through  the  exhaustion  of  the  nitrate- 
beds,  but  fresh  discoveries  demonstrated  that  new  areas 
were  available,  although  the  quality  of  the  saltpeter 
was  not  so  high.     Enough  is  known  regarding  artificial 
nitrates  to  show  that,  while  they  may  be  manufactured 
successfully  for  explosives,  the  process  is  a  costly  one, 
and  this  is  one  reason  why  they  are  not  likely  to  take 
the  place  of  natural  nitrates  in  fertilizing  the  world's 
agriculture.     Governments  do  not  have  to  count  the 
cost  of  artificial  nitrates  in  war-times,  but  individuals 
must  include  it  in  their  reckoning  of  production  under 
peace  conditions.    It  is  a  reasonable  conclusion  that 
Chile's  nitrates  are  a  permanent  source  of  income  to 
her. 

Chile  has  copper  in  fabulous  quantities,  and  she  has 
enormous  beds  of  low-grade  iron  ore.  The  country  also 
has  coal,  but  it  is  mostly  lignite,  and  there  is  not  enough 


ECONOMIC  SOUTH  AMERICA 


195 


of  it  to  meet  the  needs  for  domestic  and  local  industrial 
purposes,  while  its  assemblage  with  iron  ore  and  lime- 
stone for  industrial  purposes  has  not  proved  strikingly 
successful.  Hence  it  has  followed  that  the  ore-beds, 
under  control  and  operation  by  American  capitalists, 
are  utilized  for  steel  industries  in  the  United  States 
rather  than  for  a  Chilean  iron  and  steel  industry.  They 
are  more  valuable  at  Bethlehem  than  in.  Chile. 

The  central  valley  of  Chile  provides  some  surplus 
agricultural  products  for  export,  but  the  bleak  Pat- 
agonian  mainland  and  the  desolate  islands  of  the  Strait 
of  Magellan  in  the  sheep  pasturage  they  afford  are  of 
more  importance  as  sources  of  export,  since  they  con- 
tribute to  the  world's  wool  supply. 

Chile's  economic  policy  is  strongly  protective  where 
anything  to  protect  can  be  found.  Textile  industries 
instituted  during  the  war  are  an  example.  The  income 
from  customs  duties  is  not  inconsiderable,  but  the  larger 
portion  of  the  revenues  is  derived  from  the  export  tax 
on  the  nitrates.  Chile  has  resisted  the  temptation  to 
lay  an  export  duty  on  copper,  possibly  realizing  that 
since  her  copper  is  not,  like  nitrates,  a  natural  monopoly 
and  must  compete  with  the  copper  of  the  world,  no 
burden  should  be  placed  on  its  production. 

Peru  has  an  unusual  share  of  mineral  wealth,  due  to 
the  wide  extent  of  the  Andes  that  lies  within  her  borders. 
Aside  from  the  precious  metals,  her  principal  mineral 
product  is  copper.  There  are  extensive  deposits  of  bi- 
tuminous coal,  and  in  the  Cerro  de  Pasco  region  these 
are  of  some  local  utility;  but  the  mass  of  the  coal 
deposits  are  unavailable  through  the  lack  of  trans- 
portation facilities.  These  facilities  in  time  will  be 
provided.    The  expense  is  too  great  for  immediate  reali- 


m 


196 


AMERICAN  FOREIGN  TRADE 


zation.    The  mining  companies  have  utilized  the  water 

power  of  the  Andes,  and  hydroelectric  works  on  a  large 

scale  have  been  constructed  for  smelting  the  copper. 

Peru  has  petroleum  deposits  in  the  North,  the  output 

of  which  is  used  on  the  railways,  and  is  exported  to  the 

amount  of  2,500,000  barrels  and  upward  annually.     It 

is  an  appreciable  factor  in  purchasing  power.    Peru 

also  is  to  be  considered  in  connection  with  valuable 

agricultural  products,  since  alpaca  wool,  sugar,  and  the 

fine  cotton  of  the  North  are  exported  in  large  quantities, 

while  considerable  rubber  goes  out  through  the  Amazon. 

Peru's  economic  policy  is  one  of  protection  where 

there  is  the  possibility  of  developing  a  native  industry, 

as  in  the  case  of  cotton-mills.    High  import  duties  are 

levied  on  cotton  goods,  and  the  domestic  industry  is  a 

flourishing  one. 

In  the  fiscal  system  both  import  and  export  taxes  are 
levied.    The   export   taxes   include   mineral   products, 
rubber,  wool,  sugar,  cotton,  and  other  agricultural  com- 
modities.    For  many  years  rubber  was  the  chief  source 
of  the  export  duties,  but  the  list  was  widely  extended 
during  the  war  period.     This  radical  change  in  the  na- 
tional policy  was  effected  by  a  law  of  March  20,  1918. 
Its  distinguishing  feature  was  a  combination  of  specific 
and  ad  valorem  duties.    With  a  few  exceptions  no  export 
duty  is  imposed  until  the  market  quotations  of  the  vari- 
ous articles  reach  the  level  si>ecified  in  the  law  itself. 
Beginning  at  that  point,  the  specific  rates  provided  for 
are  applied  with  an  addition  of  ten  per  cent,  of  the 
excess  of  the  actual  market  quotations  above  the  mini- 
mum prices  fixed  in  the  law.     The  abnormal  prices  of 
most  of  the  products  included  in  the  law  foreshadowed 
its  success  while  the  war  lasted.    Whether  the  mineral 


.M^ 


ECONOMIC  SOUTH  AMERICA 


197 


and  agricultural  products,  none  of  which  is  a  natural 
monopoly,  can  pay  these  duties  and  compete  with  similar 
products  of  other  countries  under  peace  conditions  must 
be  determined  after  trial.  Theoretically,  the  provision 
under  which  the  export  duty  is  not  imposed  until  the 
market  quotations  reach  the  level  specified  in  the  law 
itself  would  meet  this  situation,  but  in  that  event  there 
would  be  no  revenues. 

Bolivia,  notwithstanding  the  lack  of  a  seacoast,  may 
be  described  as  a  west-coast  country,  although  part  of 
the  rubber  product  of  the  vast  river  region  finds  its  way 
out  through  the  Amazon  to  the  Atlantic.  While  some 
copper  is  produced,  Bolivia  is  to  be  considered  chiefly 
in  connection  with  the  production  of  tin.  The  country 
is  next  to  the  Malay  Straits  in  this  product.  Bolivia 
depends  both  on  import  duties  and  export  taxes  for  her 
national  revenue.  Tin,  as  the  leading  product,  is  the 
most  dependable  source,  although  the  export  tax  on 
rubber  affords  some  income. 

Ecuador  has  one  preponderating  source  of  national 
wealth.  This  is  the  cacao,  or  chocolate  bean.  The  coun- 
try produces  75,000,000  pounds  and  upward  of  this  com- 
modity yearly.  Other  agricultural  resources  include 
coffee,  rubber,  ivory  nuts,  or  vegetable  ivory,  straw  for 
Panama  hats,  and  hides.  There  are  few  mineral 
products.  Ecuador  derives  the  larger  part  of  the  na- 
tional income  from  the  export  tax  on  cacao,  but  wherever 
a  customs  duty  can  be  imposed  in  order  to  develop  a 
local  industry,  this  is  done. 

The  Caribbean  group  might  be  called  the  north-coast 
group,  although  it  includes  Colombia,  which  has  a  long 
frontage  on  the  Pacific  coast,  as  well  as  on  the  Atlantic. 
The  principal  products  are  coffee,  cacao,  and  fruits,  rub- 


1, 


198 


AMERICAN  FOREIGN  TRADE 


ber  from  the  interior  districts,  gold  and  silver,  various 
hardwoods  and  dyes,  and  medicinal  plants. 

The  Caribbean  countries,  Colombia,  Venezuela,  and 
the  Guianas,  have  substantially  similar  products.  Co- 
lombia depends  principally  on  the  export  of  coffee  and 
bananas,  and  on  the  gold  and  silver  mining  output  for 
her  purchasing  power  abroad.  The  platinum  deposits 
have  not  been  productive  enough  as  yet  to  be  considered 
an  important  source  of  natural  wealth.  There  are  enor- 
mous resources  not  yet  exploited.  One  of  these  is  oil. 
Its  exploitation  will  be  gradual,  but  the  value  of  the 
deposits  seems  to  be  determined.  Colombia  imposes  an 
export  tax  on  coffee  and  other  products. 

Venezuela's  principal  products  for  exports  are  cacao, 
coffee,  and  hides.  The  country  has  iron  ore  deposits 
and  also  coal,  and  has  therefore  definite  manufacturing 
possibilities;  but  these  are  not  fully  enough  tested  to 
enter  into  present  consideration.  The  Caribbean  and 
the  Orinoco  oil-regions  give  promise  of  commercial  de- 
velopment. Petroleum  is  one  of  the  assets  of  the  pres- 
ent day.  The  fiscal  system  includes  both  export  and 
import  taxes. 

Economically,  the  Guianas  are  to  be  viewed  as  pro- 
ducers of  sugar  and  a  few  other  tropical  articles,  in- 
cluding rubber,  along  with  some  gold.  Politically,  and 
commercially,  their  overseas  relation  has  to  be  recog- 
nized, especially  that  of  Dutch  Guiana  and  French 
Guiana.  British  Guiana  has  to  be  taken  in  connection 
with  British  imperial  trade  policy,  and  geographically 
as  including  the  Island  of  Demerara,  which  is  the  seat 
of  the  sugar  industry. 

This  survey  of  South  America  as  an  economic  block 
has  shown  only  in  outline  the  relation  of  tropical  and 


ECONOMIC  SOUTH  AMERICA 


199 


temperate  agriculture.  The  generalization  may  be  made 
that,  while  both  are  susceptible  of  development,  the 
products  of  tropical  agriculture  are  likely  to  be  the 
leading  source  of  exports,  and  therefore  the  principal 
element  of  purchasing  power.  Similarly,  the  exports 
of  copper  and  nitrates  are  the  chief  factors  of  an  in- 
dustrial character,  with  iron  ore  a  growing  factoK 

The  imposition  of  export  duties  works  satisfactorily 
to  all  the  countries.  The  development  of  domestic  in- 
dustries under  protective  duties  may  be  accepted  as  a 
continuous  policy,  but  one  which  will  not  change  the 
volume  of  purchases  abroad,  because  of  the  demand 
which  will  be  created  for  machinery  and  installation. 
Generally,  therefore.  South  America  may  be  considered 
as  a  great  productive  region  of  certain  raw  materials 
for  export,  and  as  a  consumer  principally  of  manufac- 
tured products.  In  this  light  it  is  to  be  viewed  as  a 
market. 


I 


M    i| 


A  MARKET  FOR  EUROPE 


201 


CHAPTER  XIV 

SOUTH  AMERICA  AS  A  MARKET  FOR  EUROPE 

Salient  geograpliical  aspects  —  Interchange  among  the  several  coun- 
tries —  Ocean  routes  to  the  Old  World  —  Panama  Canal  --  Racial  ties 
with  Europe  —  Immigration  from  the  Mediterranean  countries  —  French 
intellectual  influence  a  trade  factor  —  Spain  and  Italy  —  Reasons  for 
England's  primacy  —  A  century's  normal  growth  —  British  investments 
—  Germany's  methods  —  Teutonic  colony  in  Brazil  unimportant  —  Mar- 
ket in  other  countries  not  lost  — Tragedy  of  Belgium's  commerce  — 
Europe's  prospects. 

South  America  as  a  market  is  to  be  viewed  in  three 
salient  geographical  aspects.  These  are  the  commercial 
intercourse  of  the  several  countries  among  themselves, 
the  trade  relations  with  Europe,  and  the  trade  relations 
with  the  United  States.  There  is  some  trans-Pacific 
commerce,  chiefly  with  Australia  and  Japan,  and  there 
is  also  trade  with  India.  This  trans-Pacific  traffic  in 
a  growing  commerce,  but  it  is  relatively  a  small  factor  in 
South  America  as  a  market. 

The  commerce  of  the  several  republics  among  them- 
selves is  partly  that  of  frontier  traffic  and  partly  that 
which  requires  sea-borne  transport.  Since  the  tropical 
regions  grow  similar  products,  there  is  little  interchange 
of  these  commodities  among  them.  The  same  observa- 
tion applies  to  the  production  of  minerals.  Since  few 
of  the  countries  have  the  raw  materials  for  extensive 
manufacturing,  there  is  little  internal  commerce  in 
manufactured  commodities  except  in  textiles. 

The  frontier  trade  is  principally  the  seasonal  inter- 

200 


change  of  live-stock  and  agricultural  products.  In  illus- 
tration, there  is  a  considerable  movement  of  cattle, 
horses,  goats,  and  sheep  between  Argentina  and  Chile. 

The  larger  commerce  is  principally  that  of  foodstuffs 
between  the  tropical  and  the  temperate  regions.  The 
Argentine  Republic  draws  her  coffee  from  Brazil.  In 
return  she  sends  a  part  of  her  wheat  to  the  Brazilian 
flour-mills.  Peru  supplies  sugar-cane  to  Chile,  and  when 
the  Australian  crop  is  short  and  the  Chilean  crop  abun- 
dant, imports  wheat  from  Chile  for  her  flour-mills. 
Peru  also  ships  her  cotton  fabrics  across  the  frontiers 
to  Bolivia  and  Chile.  Brazil  sends  coffee  through  the 
Straits  of  Magellan  to  Chile,  while  Ecuador  routes  both 
cacao  and  coffee  down  the  coast  to  Chile.  The  latter  in 
return  supplies  these  countries  with  some  miscellaneous 
products  and  minor  manufactures. 

The  question  of  a  South  American  Zollverein  is  some- 
times agitated.  It  is  viewed  in  the  larger  aspect  of 
continental  commerce.  Necessarily  there  is  a  political 
background  to  it.  The  project  is  not  impracticable,  but 
it  is  not  one  that  is  likely  to  have  early  realization.  A 
more  probable  development  is  free  trade  in  articles  of 
native  origin  among  countries  grouped  geographically 
together.  This  relation  has  been  recognized  in  a  number 
of  treaties  which  have  been  negotiated,  but  have  not  be- 
come effective.  It  has  existed  between  Peru  and  Bolivia 
and  it  has  been  sought  between  Chile  and  Bolivia. 
Should  arrangements  of  this  kind  be  consummated  be- 
tween any  group  of  countries,  it  would  be  beneficial  to 
the  parties  to  it,  but  it  would  not  impair  their  value  as 
a  market  for  the  products  of  overseas  countries.^ 

iFor  an  instructive  survey  of  the  nature  of  South  American  trade 
with  all  countries,  see  "South  America  aa  an  Export  Field,"  by  Otto 


^    fT 


202 


AMERICAN  FOREIGN  TRADE 


A  MARKET  FOR  EUROPE 


203 


it 


Geographical  obstacles  prevent  extensive  interchange 
of  products  between  the  east-coast  and  tlie  Caribbean 
and  west-coast  regions.  The  Venezuelan  ports  are 
farther  away  from  Buenos  Aires  than  they  are  from  New 
York.  Guayaquil,  the  leading  port  of  the  west  coast 
between  Panama  and  Valparaiso,  is  more  accessible  to 
the  markets  of  Europe  and  the  United  States  than  to 
those  of  Uruguay  and  Brazil.  So  is  Callao,  the  gateway 
to  Peruvian  commerce. 

Relations  with  Europe,  in  so  far  as  they  affect  trade, 
are  to  be  considered  from  a  twofold  point  of  view.  One 
is  geographical;  the  other  is  racial. 

Respecting  the  geographical  relation,  the  steamship 
lanes  from  Genoa,  Marseilles,  Barcelona,  Lisbon,  Bor- 
deaux, Havre,  Liverpool,  Southhampton,  Plymouth, 
Hamburg,  and  Bremen  to  Rio  de  Janeiro,  Santos, 
Buenos  Aires,  and  other  ports  of  the  east  coast  are  but 
little  longer  than  those  from  New  York,  Boston,  and 
Philadelphia.  For  example,  from  New  York  to  Pernam- 
buco,  the  first  Brazilian  port  of  call,  is  3,700  miles. 
From  Liverpool  it  is  4,062  miles.  This  means  less  than 
400  miles  difference  to  the  east-coast  ports,  a  negligible 
factor  in  ocean  traflBc. 

Though  the  Panama  Canal  is  an  extension  of  the  At- 
lantic Coast  line  of  the  United  States  down  the  west 
coast  of  South  America,  it  shortens  the  distance  between 
European  ports  and  Guayaquil,  Callao,  and  Valparaiso 
in  the  same  proportion.  The  opening  of  the  canal,  while 
it  has  benefited  New  York  and  Norfolk  and  New  Orleans, 
also  has  enabled  the  European  steamship  lines  to  avoid 
the  long  voyage  through  the  Straits  of  Magellan  or 

Wilson,  Special  Agent  of  the  Department  of  Commerce,  Washington, 
1914.     Republished  in  1918. 


around  Cape  Horn.  Except  for  its  propinquity  to  the 
Caribbean  coast  ports,  the  United  States  relatively  has 
no  marked  advantage  over  Europe  in  transportation 

routes. 

Racial  ties,  the  inheritance  of  language,  laws,  customs, 
and  traditions,  the  bond  of  intellectual  sympathy  —  all 
these  must  have  attention  when  the  respective  relations 
of  Europe  and  the  United  States  to  South  America  are 
considered.  Latin  America  is  a  loose  and  misleading 
term,  yet  in  describing  South  America  it  reflects  the 
knowledge  that  the  Southern  Continent  as  a  whole,  and 
the  countries  separately,  were  colonized  from  the  south- 
western corner  of  Europe,  and  especially  from  the  Iber- 
ian peninsula.  It  also  reflects  the  fact  that  the  currents 
of  modern  immigration,  although  some  of  the  streams 
have  mid-European  sources,  are  from  the  Mediterra- 
nean countries,  Italy  in  particular. 

The  native  stock  of  all  the  countries  of  South  America 
except  Brazil  is  of  Spanish  origin.  Brazil  is  Portu- 
guese, with  a  large  African  intermixture.  Though  the 
peoples  of  Spain  and  Portugal  are  widely  dissimilar, 
there  is  some  identity  in  so  far  as  relates  to  their  Latin 
characteristics.  Spanish  immigration  into  South  Amer- 
ica has  been  continuous.  Italian  immigration  is  the  de- 
velopment of  the  last  half-century.  It  has  mounted 
higher  and  higher.  One  third  of  the  permanent  popula- 
tion of  San  Paulo  in  Brazil  is  of  Italian  origin,  and 
the  other  southern  States  of  Brazil  show  increasing 
Italian  elements.  Such  immigration  as  Uruguay 
profited  by  has  been  chiefly  from  Spain.  The  streams 
from  Spain  to  the  Argentine  Republic  have  flowed 
steadily  but  they  have  been  small  compared  with  the 
Italian  tide. 


ii 


i 


If 


204 


AMERICAN  FOREIGN  TRADE 


The  Argentine  Republic  has  8,000,000  inhabitants,  and 
of  this  number  3,000,000  are  of  Italian  birth  or  descent. 
One  fourth  the  population  of  Buenos  Aires,  the  greatest 
city  in  the  south  temperate  zone  of  the  world,  is  Italian. 
Argentina  has  an  immigration  policy  based  not  only  on 
the  Mediterranean  countries,  but  on  the  countries 
farther  to  the  north  as  well. 

Patagonia,  no  longer  a  forbidding  wilderness,  but 
an  habitable  agricultural  area  capable  of  gi'owing  wheat 
and  of  mixed  farming,  as  well  as  of  raising  sheep  and 
pasturing  cattle,  affords  homes  for  millions  who  are 
habituated  to  the  temperate  regions,  whih?  central  and 
northern  Argentina  are  also  capable  of  sustaining  the 
northern  races  without  danger  of  a  tropical  sapping 
of  the  energies.  The  Government  has  encouraged  colo- 
nies of  Welshmen,  of  Swiss,  of  Russian  Poles,  of  Boers, 
and  of  the  Slavs  of  central  Europe.  These  colonies 
are  taking  root,  and  in  the  course  of  another  half -cen- 
tury may  affect  the  character  of  the  Argentine  people. 
But  with  the  past  perceptibly  Spanish  colonization,  and 
with  the  existing  preponderant  Italian  immigration,  the 
national  type  at  present  is  distinctly  Latin. 

With  this  historic  inheritance,  and  with  the  tongues 
of  Spain  and  Italy  and  Portugal  so  largely  predominant, 
it  may  be  understood  how  strongly  the  Latin  habits  of 
thought  prevail  in  South  America.  It  may  also  be  com- 
prehended why  from  time  to  time  there  are  intellectual 
movements  for  a  revival  of  I lispano- Americanism.  The 
broader  Latin  intellectual  force,  however,  is  that  of 
France. 

There  are  comparatively  few  Frenchmen  in  South 
America,  but  the  influence  of  France  is  more  pronounced 
than  that  of  Spain  herself.     In  Brazil,  where,  notwith- 


A  MARKET  FOR  EUROPE 


205 


standing  the  language,  there  is  no  vital  Portuguese  in- 
tellectual impress  on  the  national  character,  French  in- 
tellectualism  is  very  pronounced.  French  thought  has 
largely  influenced  the  literature  of  Brazil,  and  has  had 
a  very  direct  influence  on  her  political  institutions.  The 
teachings  of  August  Oompte,  the  apostle  of  positivism, 
were  one  of  the  most  potent  factors  in  overthrowing  the 
monarchy  and  setting  up  the  republic,  although  little 
effort  was  made  to  establish  it  on  positivist  lines. 

It  may  consequently  be  understood  that  since  the  news- 
papers are  published  in  Spanish,  Italian,  and  Portu- 
guese, and  since  all  the  educated  classes  are  familiar 
with  French,  international  subjects  are  viewed  through 
European  glasses.  This  has  a  reflex  influence  on  com- 
merce. Sometimes  it  has  been  employed  to  attempt 
movements  for  a  Latin  league  in  South  America  to  com- 
bat a  specter  called  "  Yankee  Imperialism."  Occasion- 
ally, it  has  been  made  the  basis  of  practical  suggestions 
for  increasing  the  trade  of  the  Latin  countries  of  Eu- 
rope with  the  South-American  republics.  It  is  an  en- 
during element  that  must  be  reckoned  with  in  future 

trade  relations. 

In  view  of  the  racial  and  intellectual  ties,  the  observer 
who  examines  the  situation  from  the  practical  point  of 
view  may  ask  why  it  is  that  Spain  and  Portugal  and 
Italy,  and  even  France,  have  proportionately  so  little 
trade  as  compared  with  the  non-Latin  nations  of  Eu- 
rope, which  means  England  and  Germany.  The  answer 
is  that  both  Spain  and  Italy  have  a  good  trade,  based 
to  some  extent  on  racial  sympathy,  but  neither  of  these 
countries  has  the  domestic  basis  for  a  large  overseas  com- 
merce. They  lack  the  raw  materials  to  enable  them  to 
become  manufacturing  countries  on  a  large  scale,  and 


ll 


205 


AMEEICAN  FOREIGN  TRADE 


ht' 


South  America  as  a  market  is  principally  a  market  for 
manufactured  articles,  including  machinery.  Neither 
has  Spain  nor  Italy  surplus  capital  for  large  invest- 
ments abroad  which  develop  business,  although  they  have 
some  capital  in  South-American  banks  and  other  enter- 
prises. 

France  has  heavy  investments  in  Brazilian  railways 
and  also  in  the  railways  of  northern  Argentina  and  in 
banks.  She  gets  a  return  in  supplying  material  through 
these  investments  as  well  as  in  dividend  remittances. 
That  her  trade  with  South  America  is  reasonably  large 
is  partly  due  to  a  social  condition.  No  middle  class  lias 
yet  developed  in  any  South  American  country,  though  in 
several  of  them  there  is  the  germ  of  such  a  class.  Con- 
sequently, the  consumers  to  be  supplied  are  a  large  mass 
of  very  poor  people  who  have  limited  purchasing  power, 
or  a  small  group  of  very  rich  people  who  have  very  large 
purchasing  powder,  and  who  buy  freely  of  luxuries.  All 
the  refinements  of  the  arts  of  civilization  are  theirs,  and 
France  supplies  these  refinements,  transmitted  into  com- 
mercial commodities. 

The  primacy  in  South  American  trade  is  held  by  Great 
Britain  for  very  sound  reasons.  Through  the  foresight 
of  Canning,  for  three  quarters  of  a  century  she  had  no 
competitor.  Canning  was  the  foremost  trade  diploma- 
tist of  the  early  period  of  the  nineteenth  century.  He 
encouraged  the  American  Minister,  Richard  Rush,  to 
believe  that  England  would  cooperate  with  the  United 
States  against  the  efforts  of  the  Holy  Alliance  to  restore 
Spanish  monarchical  power,  because  he  foresaw  that  if 
the  revolting  colonies  were  again  put  under  Spanish 
authority,  Spain's  trade  monopoly  would  continue.  A 
Canning  myth  regarding  the  Monroe  Doctrine  has  been 


I  bi 


A  MARKET  FOR  EUROPE 


207 


evolved  by  some  superficial  historians  who  have  imagined 
that  the  British  premier  was  concerned  only  with  a  love 
for  political  liberty.  It  is  unnecessary  to  dissipate  the 
myth  here.  Before  their  independence  was  complete, 
the  colonists  had  to  defeat  a  British  army  at  the  River 
Plate.i  Canning  wanted  the  commerce  of  the  colonies 
for  Great  Britain,  and  he  got  it  by  the  entirely  legiti- 
mate means  of  encouraging  their  political  indepen- 
dence, with  the  free  market  which  was  the  sequence  of 
that  independence. 

British    merchants    at  once    established    themselves 
throughout  South  America,  and  the  currents  of  com- 
merce flowed  to  and  from  the  United  Kingdom.     This 
trade  was  helped  by  means  of  the  shipping  facilities 
which  from   the  beginning  England  maintained  and 
which  she  enlarged  and  strengthened  from  time  to  time. 
But  an  even  more  potent  promoter  of  British  trade  was 
her  investments.     A  large  share  of  the  superabundant 
British  capital  seeking  profitable  fields  for  employment 
naturally  overflowed  into  South  America  until,  at  the 
outbreak  of  the  Great  War,  England  had  not  far  from 
$4,000,000,000   invested  there.^     These  British  invest- 
ments in  South  America  are  the  fructifying  source  of 
British  trade;  they  are  also  the  explanation  why  the 
United  Kingdom  is  not  adversely  affected  by  the  racial 
and  intellectual  rapprochement  of  the  South  American 
countries  with  the  Latin  nations  of  Europe. 

England  clung  tenaciously  to  her  South  American 
business  during  the  first  years  of  the  Great  War,  but 

iSee  "The  Monroe  Doctrine  and  the  Canning  Myth,"  by  Charles  H. 
Sherrill,  American  Academy  of  Political  and  Social  Science,  Apnl,  1914. 

2  See  "  Banking  Opportunities  in  South  America,  Report  of  W.  U. 
Langh,  Special  Agent  of  the  Department  of  Commerce,  1915.  See  also 
Report  of  Special  Agent  Frederick  M.  Halsey  on  Investments  in  Latm 
America. 


r, 

I' 


1 1 


208 


AMERICAN  FOREIGN  TRADE 


!  I  I  I 


as  the  struggle  became  more  vital  and  her  policy  of  main- 
taining exports  had  to  yield  to  more  pressing  considera- 
tions, she  lost  considerable  of  this  trade.  Coal  ship- 
ments had  to  be  reduced  because  of  the  demands  of  her 
own  industries  and  of  the  industries  of  her  allies.  Ma- 
chinery and  railway  supplies  also  suffered.  Even  her 
market  in  cottons  was  heavily  curtailed.  But  the  falling 
off  was  viewed  as  purely  temporary,  and  none  of  the  long- 
established  connections  was  lost.  When  the  United 
States  became  fully  enlistee]  in  the  war,  and  the  outcome 
no  longer  was  in  doubt,  a  British  commercial  commis- 
sion was  despatched  to  the  South- American  countries. 
This  was  in  the  midsummer  of  1918.  It  was  the  official 
notification  that  England  was  again  out  for  South 
American  trade. 

Within  a  fortnight  after  the  armistice  had  been  signed 
the  British  consulates  throughout  South  America  issued 
notices  of  the  facilities  which  would  be  afforded  mer- 
chants who  wanted  to  go  abroad  to  stock  their  empty 
shelves.  Ships  were  also  immediately  available  on 
which  they  could  travel,  and  which  could  be  depended 
on  to  bring  back  the  goods  they  bought.  These  mea- 
sures helped  England  to  regain  some  of  her  lost  trade 
and  also  to  enlarge  her  portion  of  Germany's  commerce. 
They  made  it  sure  that  she  would  continue  to  have  her 
full  share  in  South  America  as  a  market  measured  by 
past  conditions.  But  it  is  not  so  certain  that  in  the 
building  of  port  works  and  public  works  of  all  kinds  and 
in  railways  British  capital  in  the  future  will  be  able  to 
do  in  South  America  what  it  did  in  the  past.  That 
means  that  British  trade  will  not  grow  proportion- 
ately with  the  growth  of  the  South  American  market. 
But  it  will  not  diminish. 


A  MARKET  FOR  EUROPE 


209 


Germany's  South  American  trade  was  one  of  the  strik- 
ing chapters  of  her  economic  penetration  into  the  whole 
world  and  of  her  commercial  expansion  under  the  evo- 
lution of  the  Prussian  state.     In  the  earlier  years  of 
this  period,  during  the  transformation  from  an  agricul- 
tural kingdom  or  group  of  kingdoms  into  a  grasping  in- 
dustrial empire,  the  South-American  field  was  culti- 
vated cautiously,  yet  persistently  and  systematically. 
Germany,  without  much  surplus  capital,  and  with  none 
of  the  spirit  of  adventure  which,  in  order  to  get  large 
returns,  undertakes  vast  mining  developments  and  great 
railway  enterprises,  made  investments  of  a  conserva- 
tive   character.     In    hydro-electric    development,    how- 
ever, she  led  all  other  countries.     But  principally  her 
capital  went  into  the  nitrate  fields,  public  utilities,  banks, 
and  commercial  partnerships. 

Hamburg,  with  a  thousand  export  firms  doing  busi- 
ness throughout  the  world,  gave  special  attention  to 
South  America.     Hamburg  houses  became  partners  in 
virtually  every  large  importing  firm  with  German  con- 
nections.    Germany  also  reaped  some  of  the  rich  re- 
wards of  the  carrying  trade  from  the  capital  she  put  into 
shipping  lines.     Handling  the  coffee  crop  of  Brazil  was 
partly  a  German  enterprise.     Out  of  all  these  multiform 
activities  it  resulted  that  while  the  German  investments 
in  South  America  relatively  were  small  as  compared 
with  England,  the  commerce  built  up  in  a  third  of  a 
century  was  not  so  greatly  inferior  to  that  which  Eng- 
land had  taken  a  century  to  develop. 

Whenever  the  peace  imposed  by  the  Allies  on  Germany 
permits  her  to  have  an  export  trade,  her  manufacturers 
will  again  look  southward  across  the  seas,  even  though 
they  may  be  allowed  a  merchant  marine  too  small  to  be 


-f 


210 


AMERICAN  FOREIGN  TRADE 


A  MARKET  FOR  EUROPE 


211 


( 


ii 


till 

i 


I         I 


m 


!i 


of  much  account  as  a  national  asset.  Yet  it  does  not  fol- 
low that  South  America  ceases  to  be  a  market  for  Ger- 
many or  for  German  products.  It  is  certain  to  be  a 
continuous  field  for  German  commercial  activity.  This 
is  not  the  common  impression,  but  the  common  impres- 
sion frequently  is  formed  on  national  feeling  or  personal 
desires  rather  than  on  knowledge. 

Germans  settled  in  South  America  are  to  be  considered 
in  reviewing  that  continent  as  a  mark(;t  for  German 
goods.  The  least  important  element  among  them  is  the 
nost  numerous  one.  This  is  the  German  colony  in  south- 
ern Brazil.  That  colony,  while  in  the  third  generation 
and  with  no  refreshening  stream  of  Teutonic  immigra- 
tion, nevertheless  was  a  real  peril  for  Brazil.  Its  mem- 
bers preserved  their  racial  identity,  their  language,  their 
religion,  their  schools,  and  their  customs.  The  schools 
and  the  churches  were  ruled  from  Berlin,  because  the 
subsidy  came  from  there.  After  entering  the  war 
against  Germany,  Brazil  took  energetic  measun^s  to 
meet  this  peril  from  within  and  rigorously  suppressed 
everything  of  a  German  character.  Brazilian  nation- 
ality in  the  future  will  dominate  the  States  of  Santa 
Catharina  and  Rio  Grande  do  Sul,  which  were  the  seats 
of  the  German  colonies. 

But  the  Colony  was  not  a  German  commercial  asset. 
Its  numbers  never  exceeded  400,000,  notwithstanding  the 
frequent  statements  about  the  million  Germans  in  south- 
ern Brazil.  A  million  sounded  large,  and  it  had  come 
into  use  long  before  the  war.  The  Brazilian  Govern- 
ment itself  never  gave  encouragement  to  these  figures. 

The  truth  about  the  German  settlement  was  that  as 
consumers  of  foreign  goods  the  inhabitants  were  almost 
a  cipher.    They  were  very  largely  a  rural  population, 


a  people  who  had  retrograded,  and  who  were  able  to  pro- 
duce among  themselves  substantially  all  the  articles  they 
consumed.  They  were  in  truth  a  primitive  community 
with  few  needs  which  they  cared  to  supply  from  with- 
out. 

Germany's  real  commerce  was  in  providing  goods  for 
Brazilians  themselves  through  the  ports  of  Rio  de  Ja- 
neiro and  Santos.  Interest  in  the  coffee  crop  gave  the 
Hamburg  firms  a  very  valuable  means  of  supplying  re- 
turn cargoes,  and  these  cargoes  consisted  of  a  great  va- 
riety of  manufactured  commodities.  The  hatred  grow- 
ing out  of  the  war  among  Brazilians  of  Germany  and  all 
things  German,  and  the  elimination  of  Hamburg  from 
the  coffee  trade,  assuredly  will  subtract  Brazil  from  the 
markets  of  Germany  in  South  America,  but  this  is  not  so 
in  all  the  other  countries. 

The  Argentine  Republic  remained  officially  neutral 

during  the  war,  notwithstanding  the  popular  sentiment 

in  favor  of  the  Allies.     The  German  commercial  colony 

at  Buenos  Aires  was  most  powerful.     This  commercial 

colony  still  exists.     It  may  not  draw  directly  on  Berlin, 

and  it  may  have  little  to  remit  to  Bremen  and  Hamburg 

but  it  occupies  a  very  distinctive  place  in  the  commerce 

of  Argentina.     German  goods  may  be  obtained  indirectly 

from  so-called  neutral  European  countries,  or  the  goods 

of  other  countries  may  be  procured  for  distribution,  yet 

they  will  be  handled  by  German  firms  in  Argentina, 

and  in  one  sense  will  be  a  part  of  German  trade  in  South 

America.     Emigration  from  Germany  to  Argentina  set 

in  soon  after  the  armistice  was  signed  and  this  means 

German  trade. 

Chile  has  a  distinctive  German  population  in  the 
southern  part.    Unlike  Brazil,  Chile  never  allowed  the 


I 

I 


212 


AMERICAN  FOREIGN  TRADE 


A  MARKET  FOR  EUROPE 


213 


m 


!)!  • ' 


language  of  the  country  to  be  ignored  or  its  institutions 
to  be  forgotten.  The  so-called  German  colonies  in  Chile 
are  bilingual,  speaking  both  Spanish  and  (rerman  indif- 
ferently. As  a  consequence  of  the  war  they  may  become 
absorbed  more  fully  into  Chilean  national  life,  but  the 
German  identity  will  not  disappear  for  a  long  time. 
This  means  that  there  will  be  a  preferen(!e  for  having 
German  wants  supplied  through  German  sources. 

Chile,  it  is  to  be  remembered,  also  remained  neutral 
during  the  war.  German  capital  investments  and  Ger- 
man business  interests  suffered  in  some  degree  as  a  re- 
sult, but  there  is  no  general  feeling  of  hostility  on  the 
part  of  the  people,  and  no  governmental  policy  of  root- 
ing out  German  influence  as  on  the  part  of  Brazil. 

The  examination,  if  extended  into  other  countries, 
would  give  the  same  results.  With  German  groups  still 
powerful  in  trade  and  finance  in  all  the  leading  coun- 
tries of  South  America,  it  is  too  much  to  say  that  Ger- 
many is  eliminated  from  the  South  American  markets, 
no  matter  what  the  trade  statistics  in  the  years  imme- 
diately following  the  war  may  seem  to  show. 

The  tragedy  of  commerce  in  South  America  is  the 
story  of  Belgium.  The  heroic  country  there,  as  at  home, 
was  stripped  of  her  all.  Before  the  war  the  South 
American  market  was  a  valuable  one  to  her.  She  sup- 
plied capital  for  Brazilian  railways,  and  furnished  the 
material  for  building  them.  She  entered  the  market 
of  Argentina  with  her  special  products,  and  developed 
a  considerable  trade  there.  She  introduced  her  engines 
and  railway  equipment  into  Chile,  and  found  a  profit- 
able market  in  that  country.  She  supplied  other  coun- 
tries with  her  fine  fabrics.  In  the  year  before  she  be- 
came the  victim  of  Germany's  ferocity  the  exports  from 


Belgium  to  all  South  America  were  a  definite  source  of 
her  domestic  prosperity. 

Rehabilitated  Belgium  some  day  may  have  this  trade 
back,  but  the  process  of  rehabilitation  is  a  slow  one,  and 
in  the  meantime  the  commerce  she  once  had  goes  to  her 
allies  and  protectors.  It  forms  part  of  the  general  vol- 
ume of  European  commerce  in  South  America,  and  as 
an  international  factor  may  be  credited  to  Europe 
proper.  But  a  passing  word  of  regret  may  be  dropped 
that  the  South-American  market  cannot  wait  for  Bel- 
gium's rehabilitation  in  order  that  she  may  have  her 
proper  proportion.  The  same  thing  may  be  said  of 
France,  but  in  a  lesser  degree,  for  France  managed  to 
maintain  part  of  her  South  American  trade  in  the  most 
depressing  periods  of  the  war. 

Reviewing  the  field  generally,  it  may  be  said  that  while 
the  new  era  in  the  South  American  markets  for  Europe  is 
one  of  readjustment,  it  is  not  one  of  new  trade.  Racial 
ties  and  geographical  situation,  with  the  facilities  for 
intercourse  thus  existing,  will  continue  to  be  favorable 
factors  for  Europe.  But  the  governing  factor  of  the  fu- 
ture in  the  South-American  market  is  the  United  States. 


!    4 


i; 


!| 


\  m 


I 


iiW 


CHAPTER  XV 

SOUTH    AMERICA   AS   A    MARKET   FOR   THE   UNITED   STATES 

Aspirations  from  Clay  to  Blaine — Trade  not  hampered  by  tariff 
policy  of  the  United  States  —  Brazilian  preference  —  Analysis  of  general 
commerce  —  Nature  of  increase  during  the  war  —  Shift  from  Europe  — 
Permanent  and  temporary  gains  —  Character  of  after-the-war  commerce 

—  Causes  of  adverse  and  favorable  balances  —  Basis  of  future  crrowth 

—  New  business  —  Loans  and  investments  —  Development  enterprises  — 
What  a  billion  dollars  invested  in  South  America  will  mean. 

CLOSER  relations  between  the  United  States  and 
the  South  American  countries  have  been  the 
aspiration  rather  than  the  achievement  of  Amer- 
ican statesmen  since  the  time  of  Henry  Clay.  But  until 
James  G.  Blaine  projected  his  penetrating  imagination 
into  the  future  of  the  Western  Hemispheni,  it  cannot  be 
said  that  there  had  been  a  definite  South-American  trade 
policy  on  the  part  of  the  United  States.  The  people  were 
ignorant  of  the  industrial  opportunities  and  indifferent 
to  the  commerce.  They  dici  not  need  the  markets,  and 
there  was  too  profitable  employment  for  (capital  at  home 
to  incite  them  to  look  southward. 

Mr.  Blaine  was  so  far  ahead  of  his  time  that  after 
the  lapse  of  a  third  of  a  century  Pan-American  Confer- 
ences have  met  without  the  mention  of  his  name  by  or- 
ators who  themselves  have  just  discovered  South  Amer- 
ica and  manifest  the  enthusiasm  of  original  discoverers. 
An  eminent  successor  in  the  office  of  secretary  of  state, 
Elihu  Boot,  returning  from  the  visit  in  which  his  own 
vision  of  their  future  left  a  momentous  influence  on  the 

814 


A  MARKET  FOR  THE  UNITED  STATES     215 

peoples  and  the  governments  of  the  South  American 
continent,  said  in  an  address  before  the  Trans-Mississippi 
Commercial  Congress  at  Kansas  City  in  1906 : 

Twenty-five  years  ago,  Mr.  Blaine,  sanguine,  resourceful, 
and  gifted  with  that  imagination  which  enlarges  the  his- 
torian's understanding  of  the  past  into  the  statesman's  com- 
prehension of  the  future,  undertook  to  inaugurate  a  new  era 
of  American  relations  which  should  supplement  political 
sympathy  with  personal  acquaintance  by  the  intercourse  of 
expanding  trade  and  by  mutual  helpfulness.  .  .  .  The  policy 
which  Blaine  inaugurated  has  been  continued ;  the  Congress 
of  the  United  States  has  approved  it,  subsequent  presidents 
have  followed  it.  Nevertheless,  Mr.  Blaine  was  in  advance  of 
his  time.  In  1881  and  1889  neither  had  the  United  States 
reached  a  point  where  it  could  turn  its  energies  away  from 
its  own  internal  development  and  erect  them  outward  towards 
the  development  of  foreign  enterprise  and  foreign  trade,  nor 
had  the  South  American  countries  reached  the  stage  of 
stability  in  government  and  security  for  prosperity  neces- 
sary to  their  industrial  development. 

Now,  however,  the  time  has  come;  both  North  and  South 
America  have  grown  up  to  Blaine's  policy;  the  productions 
of  trade,  of  capital,  of  enterprise  of  the  United  States,  have 
before  them  the  opportunity  to  follow,  and  they  are  free  to 
follow,  the  pathway  marked  out  by  the  far-sighted  states- 
manship of  Blaine  for  the  growth  of  America,  north  and 
souith,  in  the  peaceful  prosperity  of  a  mighty  commerce. 

It  is  the  commonest  of  misconceptions  that  trade  rela- 
tions with  the  Southern  Continent  have  been  hampered 
by  tariff  policy,  and  that  the  market  there  has  been  re- 
stricted because  of  the  restrictions  which  were  placed  on 
the  market  for  its  products  in  the  United  States.  Poli- 
ticians, in  the  plenitude  of  their  ignorance,  have  fos- 
tered this  misconception.  Yet  in  all  the  eccentricities  of 
tariff  legislation  neither  South  America  as  a  continent 


It 


r 


:  i 


! 


216 


AMERICAN  FOREIGN  TRADE 


nor  any  particular  republic  has  been  discriminated 
against  by  the  United  States.  Since  the  duty  was  taken 
off  coffee  during  President  Grant's  administration,  the 
United  States  continuously  has  admitted  ninety-five  per 
cent,  and  upward  of  the  products  of  those  nations  free 
of  duty.  Rubber,  coffee,  cacao,  bananas,  and  other 
fruits,  and  virtually  all  tropical  agricultural  products, 
have  been  on  the  free  list.  So  have  been  copper  and 
other  minerals  and  nitrates. 

The  Payne-Aldrich  law  added  further  to  this  largess 
to  South  America  by  free-listing  hides,  and  the  Under- 
wood-Simmons Act  supplemented  this  concession  by  free 
wool  and  the  cereals.  Analysis  of  the  imports  from  the 
South  American  countries  for  recent  years  shows  that 
some  of  them  have  had  more  than  ninety-nine  per  cent, 
of  their  products  admitted  to  the  United  States  free  of 
duty.  In  the  case  of  Brazil,  the  fraction  under  one  hun- 
dred per  cent,  was  so  slight  as  ta  be  imi)erceptible.  It 
is  correct  to  say  that  the  United  States  admit  ted  those 
products  free  for  its  own  purposes,  and  not  as  a  special 
favor  to  any  South  American  country.  The  same  state- 
ment might  be  made  about  the  tariff  legislation  of  all 
countries.  It  does  not  alter  the  fundamental  fact  that 
the  Southern  republics  have  had  the  benefit  of  free  mar- 
kets in  the  United  States. 

The  only  instance  where  products  of  th(*  United  States 
have  received  tariff  concessions  in  South  American 
markets,  except  during  the  brief  life  of  the  several  reci- 
procity conventions,  is  that  of  Brazil.  What  is  known 
as  Brazilian  preference  has  been  in  force  since  1904,  ex- 
cept for  one  year  during  which  it  was  intermitted.  It 
is  a  voluntary  discrimination  on  the  part  of  Brazil  in 
favor  of  certain  commodities  produced  in  the  United 


i!:i 


A  MARKET  FOR  THE  UNITED  STATES     217 

States.  The  list  has  been  increased  from  time  to  time 
until  it  includes  wheat-flour,  condensed  milk,  rubber 
manufactures,  paints,  varnishes,  ink  other  than  writing 
ink,  type-writers,  weighing  scales,  refrigerators,  pianos, 
windmills,  cement,  dried  fruits,  school  furniture  and 
desks,  and  corsets.  A  uniform  reduction  of  twenty  per 
cent,  from  the  Brazilian  schedule  rates  is  granted  to 
these  commodities,  with  the  exception  of  flour,  which  re- 
ceives a  preference  of  thirty  per  cent.  Originally,  flour 
received  only  twenty  per  cent,  but  at  a  period  when  flour 
from  the  United  States  was  threatened  with  an  entire 
loss  of  the  Brazilian  market.  Secretary  Knox  secured  an 
increase  in  the  preference  to  thirty  per  cent. 

This  preference  runs  from  year  to  year.  It  is  author- 
ized in  the  annual  budget  law  passed  by  the  Brazilian 
Congress,  and  is  made  effective  by  the  decree  of  the  exec- 
utive. Brazil  also  has  shown  a  disposition  to  modify,  by 
means  of  administrative  rulings,  the  duties  on  some 
products  of  considerable  importance  to  the  United 
States;  but  this  is  in  no  sense  a  discrimination,  since 
other  countries  also  are  benefited  by  the  rulings.  The 
total  trade  affected  by  the  preference  forms  only  a  small 
percentage  of  the  imports  into  Brazil  from  the  United 
States. 

In  the  ten  years  following  Mr.  Root's  address  there 
was  something  in  the  nature  of  systematic  policy  to  en- 
large the  trade  of  the  United  States  in  the  markets  of 
South  America.  Analysis  of  the  trade  in  the  decade 
before  the  Great  War  shows  its  nature.  The  South 
American  imports  from  the  United  States  consisted  of 
mineral  oils,  lumber,  mining  machinery,  farm  machinery, 
steel  rails,  locomotives  and  other  railway  equipment, 
miscellaneous  iron  and  steel  products,  electrical  appa- 


I 


f 


218 


AMERICAN  FOREIGN  TRADE 


I 

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III' 

I, 

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,1     ' 

1  I'll 

1 

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i  \ 

1 

^H  i 

P 

'  .- 

ratus,  office  appliances,  flour,  lard,  and  bacon,  and  that 
yague,  but  wide-embracing,  category  known  as  general 
merchandise.  The  market  for  textiles  was  the  most  lim- 
ited of  all.  There  were  no  primary  raw  materials  of 
consequence.  Mineral  oils,  lumber,  and  flour  might  be 
classed  as  semi-manufactured  articles,  but  the  bulk  of 
the  imports  were  manufactured  commodities.  The  total 
values  amounted  approximately  to  |150,000,000,  mea- 
sured by  the  prices  on  leaving  the  United  States.  Mea- 
sured by  the  import  values  of  the  South  American  coun- 
tries the  total  would  be  larger. 

The  United  States  was  a  reciprocal  market  princi- 
pally for  primary  raw  materials  from  South  America. 
There  was  rubber,  with  the  tropical  food  products,  coffee, 
cacao,  and  bananas.  The  products  of  temperate  agri- 
culture imported  were  chiefly  hides  and  wool.  The  min- 
eral products  included  the  precious  metals,  but  princi- 
pally copper  and  the  nitrates. 

In  the  early  stage  of  the  war,  while  the  United  States 
remained  an  aloof  neutral,  there  was  a  reduced  commerce 
both  in  volume  and  value.  The  leading  South  American 
republics  were  passing  through  commercial  and  financial 
crises  which  already  had  reduced  their  purchases  from 
all  countries.  These  crises  were  accentuated  by  the  war 
uncertainties  and  the  difficulties  of  transportation.  Re- 
lief came  when  the  United  States  began  to  absorb  some 
of  the  products  for  which  the  European  market  had 
been  either  entirely  closed  or  restricted.  It  increased 
the  purchases  of  Brazilian  coffee  in  a  constantly  as- 
cending degree.  Much  larger  quantities  of  Brazilian 
hides  were  taken,  the  imports  being  trebled  in  two  years. 
Rubber  was  taken  in  augmented  quantities,  although 


A  MARKET  FOR  THE  UNITED  STATES     219 

there  were  some  interruptions  in  this  movement  due  to 
England^s  policy  of  controlling  shipments.  The  im- 
ports of  cacao  were  doubled. 

The  Argentine  Republic,  with  the  war  demand  full 
upon  her,  and  with  England  and  France  keeping  trans- 
portation open  in  order  to  assure  themselves  the  benefit 
of  the  staple  foodstuffs,  had  apparently  little  need  of 
a  new  market,  yet  it  proved  to  be  a  convenience  to  have 
some  of  her  surplus  crops  absorbed.  There  was  an 
abundance  of  maize,  or  corn,  and  the  United  States,  not- 
withstanding its  own  huge  crop,  took  part  of  the  Argen- 
tine surplus.  The  purchases  of  hides  advanced  in  quan- 
tity fivefold.  A  market  was  opened  for  flaxseed,  which 
previously  had  not  been  in  demand.  In  two  years  the 
purchases  of  wool  advanced  four-fold.  The  United 
States  also  absorbed  a  heavy  proportion  of  Uruguay's 
hides  and  wool.  Bolivian  tin,  in  the  form  of  concen- 
trates, or  raw  material,  was  given  a  market  in  the  United 
States  by  the  enterprise  of  American  smelting  interests. 
These  established  a  smelter  on  the  coast  of  New  Jersey. 
This  absorbed  substantially  all  of  the  Bolivian  tin  output 
during  the  war. 

From  Chile  the  United  States  more  than  doubled  its 
purchases  of  nitrates,  for  which  the  European  market 
had  been  partly  closed  through  the  shutting  off  of  Ger- 
many and  the  spoliation  of  Belgium.  The  imports  of 
copper  were  greatly  increased.  Peru  was  benefited  by 
the  United  States  doubling  the  purchases  of  copper  and 
taking  tropical  agricultural  products  in  augmented  quan- 
tities. Other  South  American  countries  were  benefited 
in  the  same  way  by  the  purchase  of  their  staple  crops, 
for  which  the  European  market  had  become  restricted. 


! 


k: 


■npi 


220 


AMERICAN  FOREIGN  TRADE 


WM 


:!     f 


The  reciprocal  South  American  market  was  not  pro- 
portionate to  the  absorption  by  the  United  States  of 
South  American  products,  but  this  was  in  some  measure 
a  war  condition,  and  related  especially  to  restricted 
transportation  facilities.  In  some  articles  a  foothold 
was  obtained,  while  the  sale  of  others  was  visibly  in- 
creased.  England's  inability  to  furnish  sufficient  coal 
resulted  in  heavy  imports  of  American  coal  by  the  Ar- 
gentine Republic,  Brazil,  and  Uruguay. 

Iron  and  steel  products  generally  and  railway  ma- 
terials particularly  were  not  greatly  augmented,  because 
the  mills  in  the  United  States  were  compelled  to  provide 
for  the  European  belligerents  and  for  ihe  war  prepara- 
tions at  home.  Moreover,  there  was  little  new  railway 
building  in  South  America.  Some  forms  of  machinery, 
however,  were  bought  in  reasonable  quantities,  and  auto- 
mobiles showed  a  steady  progression.  Tinplate  was  an 
exception  to  the  rule  regarding  iron  and  steel  products. 
The  imports  of  it  were  heavy.  Miscellaneous  merchan- 
dise  also  advanced  in  volume  as  well  as  in  value.  The 
most  significant  gain  was  in  cotton  goods. 

After  the  United  States  became  a  belligerent,  the  ab- 
sorption of  South  American  raw  material  products  con- 
tinued, but  the  purchases  were  made  in  conjunction  with 
the  Allies  and  the  distribution  in  the  same  manner. 
Some  of  the  exports  to  South  America  grew,  yet  in  many 
of  the  commodities  there  was  a  falling  off  due  to  the 
further  diversion  of  mills  and  factories  to  munition 
works.  The  lack  of  transportation  facilities  also  oper- 
ated as  a  check  on  the  general  trade  movement.  These 
statements  are  made  without  reference  to  statistical  de- 
tails concerning  particular  commodities.  Making  al- 
lowance for  inflated  war  values,  the  United  States  was 


A  MARKET  FOR  THE  UNITED  STATES     221 

able  to  show  an  increase  in  percentages  as  well  as  in 
quantities  and  total  values  in  the  South  American  mar- 
ket.    This  was  the  evidence  of  real  gain. 

The  shifting  of  the  trade  is  shown  by  the  following 
tabular  exhibit  of  the  three  years  before  the  war  and 
three  years  during  the  war,  taken  from  the  Bulletin  of 
the  Pan-American  Union: 

SOUTH  AMERICAN  REPUBLICS  —  IMPORTS 


United 
Kingdom 

Germany 

France 

United 
States 

Three   yrs.   be- 
fore the  war : 

1911 

1912 

1913 

$262,099,378 
271,596,755 
285,555,025 

$166,057,707 
179,183,276 
188,900,663 

$  77,470,841 
84,009,125 
89,520,389 

$129,701,069 
153,363,245 
167,523,600 

Total  .. 

819,251,158 

634,141,646 

251,000,355 

450,587,814 

Three  yrs.  dur- 
ing the  war : 
1915 

134,893,988 
151,330,088 
135,391,498 

25,935,543 
33,135,448 
29,237,751 

157,281,670 

1916 

245,039,476 

1917 

328,104,962 

Total 

421,615,574 

88,308,742 

730,426,107 

3  yrs'  in- 
crease 

1397,635,584 
148 

1162,691,613 
165 

279,838,292 

Per  cent. 

62 

1  Decrease. 


The  character  of  the  after-war  trade  between  the 
United  States  and  South  America  is  not  likely  to  change, 
because  the  essential  conditions  are  the  same.  South 
America  will  continue  to  want  principally  manufac- 
tured articles,  and  will  be  able  to  supply  tropical  food 


:i| 


11 


i 


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ii 


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ii!#'i 


222 


AMERICAN  FOREIGN  TRADE 

SOUTH  AMERICAN  REPUBLICS  —  EXPORTS 


( 

United 
Kingdom 

Germany 

France 

United 
States 

Three  yrs.   be- 
fore the  war : 

1911 

1912 

1913 

$236,722,421 
270,693,412 
281,988,119 

$139,392,981 
156,625,332 
162,026,169 

$  97,968,551 
103,831,319 
104,971,303 

9    194,918,560 
247,094,781 
204,287,389 

Total  .. 

789,403,952 

458.044,482 

306,771,173 

646,300,730 

Three  yrs.  dur- 
ing the  war: 
1915  ..... 

297,984,630 
294,210,604 
324,497,601 

95,579,973 
140,507,243 
144,944,925 

341,183,532 
453,213,386 
592,275,562 

1916 

1917 

Total  .. 

916,692,835 

381,050,141 

1,386,672,479 

3  yrs'  in- 
crease . 

127,288,883 
16 

74,278,968 
24 

730,371,759 
1 1^ 

Per  cent. 

stuffs,  and  products  from  the  temperate  regions,  such 
as  hides  and  wool.  She  will  have  mineral  products  in 
steadily  increasing  quantities  to  dispose  of.  There  are, 
however,  some  special  considerations,  that  affect  the 
trade  relations  with  particular  countries. 

The  United  States,  in  determining  the  place  it  will  oc- 
cupy in  the  South- American  markets,  will  be  compelled 
to  take  note  of  what  may  be  called  an  international 
nuisance.  "  Dumping  "  in  neutral  territory  is  one  phase 
of  world  commerce.  It  could  riot  be  entirely  controlled 
by  international  trusts  if  these  trusts  could  be  again 
formed.  The  field  is  too  inviting,  and  the  inducements 
for  price-icutting  are  too  strong.  The  elimination  of 
Germany,  with  her  commercial  immorality  and  her  trade 


A  MARKET  FOR  THE  UNITED  STATES     223 

policy  of  dumping  in  foreign  markets,  does  not  entirely 
eliminate  the  disturbing  factor. 

Since  South  America  is  so  large  an  importer  of  man- 
ufactured commodities,  it  is  to  her  interest  to  encourage 
the  competition  of  many  countries  in  her  market,  and 
dumping  is  one  form  of  this  competition.  She  will  do 
this  without  fear  that  her  consumers  will  be  unfavorably 
affected  by  finding  themselves  at  the  mercy  of  a  monopoly 
when  once  the  market  has  been  obtained.  The  defeated 
competitors  will  be  too  watchful  and  too  eager  to  regain 
a  foothold  for  any  one  country  to  retain  the  market  for 
a  given  commodity  at  extortionate  prices.  This  means 
that  the  United  States  must  be  prepared  to  meet  the 
prices  of  its  competitors. 

It  is  the  common  knowledge  that  South  America  as 
a  whole,  and  the  majority  of  the  respective  countries, 
have  large  apparent  balances  of  trade  in  their  favor. 
This  is  due  to  their  ability  to  supply  the  rest  of  the  world 
with  raw  materials  many  of  which  are  of  the  nature  of 
monopolies  of  production.  This  apparent  balance  is 
partly  offset  by  remittances  for  interest  payments  on 
loans  held  abroad  and  on  development  enterprises  of 
foreign  countries.  The  United  States  has  not  yet 
reached  the  point  where  it  has  an  invisible  balance  of 
this  character  to  offset  the  apparent  balance  created  by 
the  excess  of  exports  from  the  South  American  countries 
over  imports.  ' 

The  North-American  people  are  such  pronounced  con- 
sumers of  coffee  that  this  staple  alone  insures  Brazil  a 
balance  over  what  normally  she  can  purchase  in  the  way 
of  commodities.  Each  person  takes  about  nine  and  a 
half  pounds  of  coffee  annually,  and  nine  pounds  of  this 
quantity  comes  from  Brazil.     Consequently,  so  trifling 


!i| 


224 


AMERICAN  FOREIGN  TRADE 


i  el  I 


1;  : 


w^ 

1    !• 

ill 

i           :^^l    nil 

i 

;  ! 

a  thing  as  the  coffee-cup  is  an  important  factor  in  South- 
American  trade.  The  policy  of  the  United  States  is  and 
should  be  to  reduce  this  adverse  balance  as  largely  as 
possible  by  exporting  commodities  to  Brazil,  but  it 
should  not  be  held  as  a  grievance  against  Brazil  that  an 
exact  equilibrium  cannot  be  established. 

A  somewhat  similar  condition  obtains  with  regard  to 
Chile.  The  growing  purchases  of  Chih^an  nitrates  and 
of  copper  have  built  up  a  favorable  balance  of  trade  for 
that  progressive  country.  The  increase  of  imports  from 
the  United  States  for  industrial  purposes  serves  to  nor- 
malize the  economic  situation,  but  an  equilibrium  may 
not  be  obtained  for  many  years  to  come.  Yet  Chile  con- 
stantly proves  to  be  a  better  customer  for  American  pro- 
ducts. 

The  Argentine  Republic  presents  a  contrast.  There 
the  normal  balance  is  against  her  and  in  favor  of  the 
United  States.  A  very  valuable  market  has  been  built 
up  for  farm  machinery  of  the  kind  in  which  the  United 
States  is  preeminent.  Argentina,  having  no  basis  for 
a  basic  iron  and  steel  industry,  will  always  be  a  heavy 
buyer  of  farm  implements  abroad,  and  the  United  States 
will  be  her  principal  source  of  supply.  She  cannot  find 
a  market  in  this  country  for  products  of  her  own  in  quan- 
tities sufficient  normally  to  offset  these  purchases.  The 
reason  is  that  her  staple  products  are  agricultural,  and 
a  large  market  cannot  exist  for  them  in  a  country  with 
the  vast  agricultural  area  of  the  United  States.  Nom- 
inally, the  two  countries  are  competitors  in  the  world's 
markets,  because  both  are  producers  of  agricultural  com- 
modities. Actually,  the  competition  is  slight,  because 
of  the  circumstances  which  reduce  the  surplus  agricul- 
tural products  that  the  United  States  has  for  export. 


A  MARKET  FOR  THE  UNITED  STATES     225 

This  is  a  normal  relation  but  it  is  subject  to  exception, 
as  a  statistical  citation  will  show.  In  the  year  1913  the 
imports  into  Argentina  from  the  United  States  amounted 
to  $50,000,000,  while  the  exports  were  |23,000,000.  The 
following  year  the  conditions  were  almost  exactly  re- 
versed. The  imports  from  the  United  States  were  |30,- 
000,000,  and  the  exports  to  it  150,000,000.  There  was  a 
reason  for  such  an  astonishing  reversal  of  trade  balances. 
In  1914  Argentina  was  in  the  midst  of  a  serious  depres- 
sion, and  her  purchases  abroad  were  enormously  cur- 
tailed. Agricultural  machinery  was  one  of  the  heaviest 
amounts  in  this  curtailment. 

In  the  same  year  the  United  States,  notwithstanding 
its  own  large  volume  of  farm  crops,  was  short  on  several 
commodities.  Corn  and  oats  were  imported  from  Ar- 
gentina. A  market  also  was  opened  for  flaxseed,  and 
Argentine  meats  for  the  first  time  were  supplied  to  North 
American  consumers.  These  two  circumstances  —  that 
is,  Argentina's  decreased  purchases  of  manufactured 
articles  on  account  of  her  commercial  depression,  and 
the  new  market  opened  in  the  United  States  for  her  agri- 
cultural products  —  brought  about  not  an  equilibrium, 
but  a  reversal  of  trade  balances.  The  succeeding  years 
were  more  normal,  but  they  cannot  be  taken  as  a  perma- 
nent measure  of  the  mutual  commercial  movement. 
The  probability  is  that  the  balance  of  trade  between  the 
United  States  and  Argentine  always  will  be  in  favor  of 
this  country,  yet  the  United  States  will  find  its  Argen- 
tine market  increasingly  valuable  in  the  degree  that  by 
purchases  of  Argentine  agricultural  products  some  ap- 
proach is  made  to  an  equilibrium. 

Recurring  to  the  whole  field  of  South  America  as  a 
market  for  the  United  States,  some  conclusions  may  be 


226 


AMERICAN  FOREIGN  TRADE 


' 


^ 


'iMa 


drawn  from  what  has  been  stated  in  the  preceding  pages, 
and  some  statements  of  a  general  character  may  be  made. 
When  the  Great  War  began,  the  United  States  was  be- 
ginning to  retrieve  the  laggard  years  in  which  no  ef- 
fort had  been  made  to  participate  in  the  South  Ameri- 
can market  in  a  systematic  manner.  Its  exporters  and 
manufacturers  were  becoming  real  coDii)etitors  with  Eu- 
rope and  were  in  a  way  to  obtain  a  proportionate  share  of 
the  trade.  During  the  war  period  there  was  a  definite 
gain,  much  of  which  was  due  to  the  elimination  of  Ger- 
many and  Belgium,  and  some  of  which  will  be  held  per- 
manently. But  the  real  gain  was  of  a  more  positive 
character. 

Progress  was  made  in  facilitating  the  interchange  of 
commodities  when,  under  the  provisions  of  the  Federal 
Reserve  Act,  the  banks  of  the  United  States  established 
branch  banks  in  South  America.  The  transactions  made 
possible  by  this  course,  while  not  insuring  dollar  ex- 
change, were  a  step  in  that  direction.  There  was  also 
a  tendency  to  adjust  trade  to  the  system  of  long  credits, 
which  might  be  called  an  approximation  on  both  sides. 
Some  advance  was  made  in  the  knowledge  of  local  trade 
customs  and  requirements,  and  even  In  the  language  of 
the  countries  in  which  the  business  was  to  be  done. 

These  advances  assure  the  United  States  a  fair  propor- 
tion of  the  future  trade  of  South  America.  They  assure 
that  it  will  occupy  a  plane  of  equality  with  Europe. 
They  offer  no  prospect  of  monopoliziug  the  commerce  to 
the  exclusion  of  that  continent,  nor  is  it  desirable  that 
they  should  offer  such  a  prospect.  Europe  must  live. 
Foreign  trade  is  food  to  her,  and  South  America  must 
furnish  a  part  of  the  aliment. 

There  is  a  wider  horizon  to  which  the  United  States 


A  MARKET  FOR  THE  UNITED  STATES     227 

can  look.  This  is  in  new  business.  Some  of  the  broad- 
est-minded industrial  leaders  in  the  United  States  ex- 
port trade  refused  to  enter  the  South  American  field 
merely  to  take  business  away  from  those  countries 
which  were  already  established  there.  If  there  was  no 
increase  to  be  had,  they  did  not  think  it  worth  their  while. 
Where  they  could  see  an  increase,  they  entered  into  com- 
petition for  existing  trade,  but  only  as  the  basis  for 
future  participation.  That  is  the  prospect  that  now 
unfolds.  Back  of  it,  however,  is  what  may  be  called  the 
psychological  element 

A  better  understanding  of  Hispano-American  char- 
acter, or,  to  be  more  correct,  or  Ibero-American  charac- 
ter, is  the  essential.  It  is  almost  a  platitude  to  talk 
about  promoting  a  better  knowledge,  but  the  subject 
cannot  be  ignored.  In  dealing  with  South  Americans 
extremes  are  to  be  discouraged.  In  the  past  there  has 
been  the  patronizing  tone  based  on  ignorance,  which  was 
intensely  irritating  to  plain  South-American  business 
men  as  well  as  to  cultivated  South  Americans.  This 
has  been  followed  by  a  tendency  to  fulsome  flattery,  also 
based  on  ignorance.  Usually  it  has  been  accompanied 
by  a  readiness  by  North  Americans  to  defame  their  own 
country  and  to  attribute  to  it  motives  and  policies  which 
never  existed. 

In  their  diplomatic  controversies  with  the  United 
States,  the  South- American  countries  often  have  been  in 
the  wrong.  Their  public  men  and  their  intellectual 
classes  know  it,  and  nothing  is  gained  by  pandering  to 
the  prejudices  of  those  who  do  not  know  or  do  not  care 
to  know.  It  is  always  well,  therefore,  for  the  North 
American  to  maintain  his  self-respect  and  not  to  defame 
his  home  country  as  a  means  of  gaining  favor.    With 


F 


i 


"1 


228 


AMERICAN  FOREIGN  TRADE 


!     ! 


i''. 


ill 


this  reservation,  the  work  of  building  up  trade  in  South 
America  by  first  establishing  a  sympathetic  understand- 
ing of  the  South-American  people  may  go  forward  on  the 
right  lines.  That  is  the  psychology  of  the  South-Ameri- 
can markets. 

There  is  another  psychological  factor  which  is  even 
more  vital.  This  is  what  may  be  called  the  visibility  of 
the  United  States.  Its  presence  in  South  America  in 
the  form  of  capital  is  what  is  needed.  Branch  banks  are 
helps,  but  they  do  not  create  capital;  they  only  fix  the 
channels  in  which  it  flows.  The  prime  need,  therefore, 
in  order  to  assure  a  large  volume  of  new  business  in 
South  America,  is  for  the  United  States  to  export  some 
of  its  capital  as  well  as  its  products.  Europe  will  not 
be  able  further  to  finance  the  South  American  republics, 
although  England  and  France  both  hold  tenaciously  to 
the  securities  they  already  possess.  When  these  were 
pledged  as  collateral  for  war  loans  in  the  United  States, 
it  was  with  the  definite  intention  of  not  parting  with  the 
collateral,  because  of  its  value  as  a  trade  asset.  But  the 
new  loans  which  will  be  required  for  government  work 
such  as  harbors,  port  works,  irrigation,  and  railways, 
cannot  be  supplied  by  England  or  France.  The  war 
burden  of  those  nations  is  too  heavy. 

These  loans  must  be  provided  by  the  United  States. 
In  providing  them,  it  provides  itself  with  a  very  definite 
market  for  material.  Virtually  no  loans  existed  at  the 
close  of  the  war.  A  short-term  borrowing  of  $25,000,000 
by  the  Argentine  Republic  was  satisfied  and  canceled. 
A  municipal  loan  of  Sao  Paulo,  Brazil,  has  some  years 
to  run.  A  similar  loan  of  Rio  de  Janeiro  was  floated 
after  the  war.     Two  or  three  minor  loans  of  less  than  a 


A  MARKET  FOR  THE  UNITED  STATES     229 

million  dollars  each  were  made  to  other  municipalities. 
They  are  a  trifle. 

Investments  in  development  enterprises  have  been  on 
a  much  larger  scale.  The  spirit  of  romance  and  adven- 
ture which  is  latent  in  every  American  industrial  and 
financial  leader,  and  which  finds  its  satisfaction  in  min- 
ing ventures,  has  the  most  ample  field  in  South  America. 
It  already  has  been  responsive  to  great  opportunities 
there.  The  abandoned  copper  deposits  of  Teniente,  fifty 
miles  from  the  capital  of  Chile,  were  reopened  through 
American  enterprise  when  cheaper  processes  of  treating 
ores  were  discovered.  In  ten  years  an  industrial  com- 
munity of  ten  thousand  people  sprang  up. 

In  a  shorter  period  the  greater  copper-field  of  Chuqui- 
camata,  in  northern  Chile,  was  revivified  from  an  aban- 
doned mining  camp  to  become  the  most  gigantic  copper 
property  in  the  world,  with  an  industrial  community  of 
15,000  persons  dependent  on  it.  Other  mountains  of 
copper  at  Portrerillos  and  elsewhere  in  Chile  also  have 
been  attacked  by  bold  and  venturesome  American  capi- 
talists, with  the  prospects  rapidly  turning  into  certainty. 
The  great  iron  mountain  at  Tofo  responded  to  the  enter- 
prise of  an  American  steel  maker,  and  its  ore  becomes 
tributary  to  Bethlehem.  In  Peru  the  Cerro  de  Pasco 
mine  of  copper,  after  the  investment  of  many  millions  in 
American  dollars,  has  become  one  of  the  most  productive 
properties  of  South  America.  It  is  development  enter- 
prises of  this  character  which,  by  creating  new  business, 
enlarge  the  South  American  market  for  the  manufactur- 
ers of  the  United  States. 

These  and  similar  American  investments  are  the  real 
basis  of  the  trade  of  the  United  States  in  South  America 


-5^ 


lil'' 


i 


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1 

r 


jiiiliiii™. 


230 


AMERICAN  FOREIGN  TRADE 


in  the  new  era.  At  its  beginning  thej  amount  approxi- 
mately to  half  a  billion  dollars,  one  half  of  which  is  in- 
vested in  Chile  alone.  ^ 

The  Argentine  investments  are  principally  in  the  pack- 
ing-house plants  and  in  collateral  enterprises.  Packing- 
house plants  also  furnish  a  considerable  part  of  the  Bra- 
zilian investments,  although  railways  and  water-power 
plants  are  of  importance.  Canadian  and  British  money 
is  in  these  Brazilian  enterprises,  but  it  is  intermingled 
with  capital  from  the  United  States  in  a  manner  hard 
to  differentiate.  The  point  is  that  the  partnership  of 
this  capital  with  Canadian  and  British  associates  assures 
the  purchase  of  material  in  the  United  States  as  well  as 
in  England. 

The  Peruvian  investments  are  mainly  in  copper  mines 
and  the  railway  and  hydro-electric  plants  which  were 
constructed  to  develop  the  mining  properties ;  but  there 
are  also  other  investments  in  the  United  States  in  Peru 
which  from  their  nature  insure  the  i)urchase  of  material 
in  this  country. 

The  future  of  North  American  investments  in  South 
America  can  be  judged  by  the  existing  ones.  Mines 
and  railways  and  hydro-electric  plants  for  the  entire 
continent,  packing-house  and  meat  refrigerating  plants 
for  the  great  live-stock  country  of  southern  Brazil, 
Uruguay,  and  Argentina  —  all  these  are  the  principal 
reproductive  fields  that  are  open  to  North  American 

1  This  estimate  is  based  on  the  author's  calculations  from  personal 
knowledge.  The  report  of  Special  Agent  Halsey  of  the  Department  of 
Commerce  on  South-American  investments  gives  a  somewhat  smaller 
total;  namely,  Argentine,  $100,000,000;  Chile,  $225,000,000;  Brazil, 
$50,000,000;  Peru,  $50,000,000,  and  other  countries,  $25,000,000.  The 
Argentine  loan  was  included  in  this  estimate,  and  ohould  be  deducted 
from  the  total  as  of  the  year  1919. 


A  MARKET  FOR  THE  UNITED  STATES     231 

capital.  Port  works  and  irrigation  works  and  other 
forms  of  public  improvement  undertaken  by  govern- 
ments, states,  and  municipalities,  are  the  fields  for  the 
investment  of  capital  in  the  form  of  loans.  It  is  these 
two  classes  that  create  new  business  by  the  markets 
they  open.  It  is  they,  too,  which  are  the  proof  to  the 
several  countries  that  the  United  States  is  seeking  to 
facilitate  their  interests  as  well  as  its  own.  They  are 
the  real  basis  of  the  future  markets.  In  the  next  ten 
years,  the  United  States  should  supply  South  America 
with  a  billion  dollars  in  the  form  of  loans  and  actual  in- 
vestments in  development  enterprises. 


P 


3 


I 


!  :! 


Ill 


CHAPTER  XVI 

ECONOMIC  DESTINY  IN  THE  CARIBBEAN 

What  the  purchase  of  the  Danish  Islands  foreshadows  —  The  Carib- 
bean crescent  as  an  economic  curve  —  Cuba's  sugar-cane  and  tobacco  — 
Porto  Rico's  coflFee  and  sugar  —  British  posRe^sions  —  Jamaica  an  iso- 
lated unit  —  Proposed  Canadian-West  Indian  Federation  —  Trade  Agree- 
ment of  1913  —  Panama  and  Central  America  —  Bananas  and  coffee  — 
Foreign  investments  —  Economic  aspect  of  increased  productiveness  in 
the  Caribbean  area  —  Influence  of  the  United  States  —  Positive  national 
policy  —  The  protectorates  —  Nicarauguan  treaty  —  Benevolent  coercion 
—  Santo  Domingo's  objection  —  Significance  of  the  Haitian  treaty  — 
Promise  of  stability  and  order  —  Future  commerce. 

NAVAL  strategy  and  national  defense  caused  the 
flag  of  the  United  States  to  float  over  what  was 
the  Danish  West  Indies,  tlie  Virgin  Islands  his- 
torically, and  so  designated  when  they  became  American 
territory.  It  is  one  of  the  consequences  of  the  Great 
War,  although  it  was  consummated  before  the  United 
States  entered  the  war.  It  is  also  the  realization  of  a 
deferred  chapter  of  manifest  destiny. 

No  thought  of  commerce  entered  into  the  purchase  of 
these  islands.  The  trade  of  the  whole  group  is  not  ca- 
pable of  much  expansion.  Yet  the  acquirement  of  St. 
Thomas  is  a  further  step  in  the  commercial  control  of 
the  Caribbean  area  which  geography  decrees.  It  dispels 
the  dream  of  a  British-fJaribbean  confederation,  or  a 
Canadian-West  India  union.  It  foreshadows  the  dis- 
appearance of  the  Dutch  flag  from  Curagoa,  and  per- 
haps in  the  lapse  of  time  of  the  P'rench  standard  from 
Martinique  and  Guadeloupe. 

232 


ECONOMIC  DESTINY  IN  THE  CARIBBEAN     233 

The  United  States  has  had  a  close  relation  with  the 
Caribbean  area  from  the  colonial  period,  when,  after 
Cromwell's  seizure  of  Jamaica,  charts  of  "  ye  Windward 
Passage  "  and  of  the  "  West  Indies  from  Cape  Cod  to  the 
River  Oronoque  '^  appeared  in  London.  In  Revolution- 
ary days  and  thereafter  the  West  Indian  commerce  was 
important  enough  for  the  United  States  to  stipulate 
for  its  rights  in  the  carrying  trade,  and  even  to  include 
them  in  the  threatened  war  with  France,  and  in  actual 
war  with  England  in  1812.  In  those  days  the  trade  was 
very  largely  a  New  England  one.  It  was  a  New-Eng- 
lander,  Timothy  Dexter,  who,  when  warming-pans  went 
out  of  fashion,  made  a  fortune  by  buying  them  up  and 
shipping  them  to  the  West  Indies,  where  they  were  sold 
at  a  profit  for  the  ladling  of  molasses.  Later  the  trade 
became  less  a  New  England  monopoly.  New  York  be- 
came interested  in  it,  and  Philadelphia,  and  still  later 
the  South  Atlantic  ports  and  New  Orleans. 

The  island  rim  of  the  Caribbean  crescent  extends  from 
the  westward  end  of  Cuba  to  the  South  American  main- 
land above  the  mouth  of  the  Orinoco.  The  mainland 
between  the  two  horns  stretches  from  British  Guiana 
along  the  Venezuelan  and  Colombian  coasts,  Panama 
and  Central  America  to  the  tip  of  the  Yucatan  peninsula. 
Jamaica,  and  some  of  the  lesser  West  India  Islands,  lie 
well  within  the  crescent.  The  whole  West  India  group 
was  described  by  Thomas  Coke,  a  Wesleyan  missionary 
of  the  eighteenth  century,  as  the  scattered  fragments  of 
a  broken  continent  situated  in  an  extensive  excavation 
apparently  scooped  out  by  the  hand  of  Providence.  The 
bold  curve  of  the  Windward  and  Leeward  Islands  from 
St.  Thomas  to  the  South-American  coast-line  completes 
the  island  rim  of  the  crescent.     North- American  expan- 


i 
« 


-  i 

■ 


Ml 


i       ( 


234 


AMERICAN  FOREIGN  TRADE 


II 
il 


sion  is  following  a  geographical  line  along  the  bend  of  the 
crescent.  Caribbean  commerce  cannot  be  understood 
without  the  knowledge  of  this  political  tendency,  al- 
though definite  political  purpose  may  be  lacking. 

Commerce  ceases  to  be  prosaic  when  it  b<»comes  the 
means  that  may  unite  the  scattered  fragments  of  the 
broken  continent  into  a  commercial  commonwealth  un- 
der a  political  shield.  The  process  works  out  through 
the  operation  of  geography  acting  on  economic  tenden- 
cies, in  this  instance  the  tendency  of  the  islands,  by  force 
of  economic  gravitation,  to  be  rlrawn  to  the  United 
States,  and  the  tendency  of  the  national  policy  of  the 
United  States  to  draw  them  to  it. 

Cuba  is  a  protected  American  State,  republic  of  Cuba 
though  it  be.  Porto  Rico  is  territory  of  the  United 
States,  as  are  the  Virgin  Islands,  with  St.  Thomas  as 
the  naval  base.  The  island  which  comprises  Haiti  and 
Santo  Domingo  is  a  protectorate  of  the  United  States, 
whatever  official  terminology  may  be  used  to  designate 
the  status  of  the  respective  governments.  A  corollary 
of  this  status  is  the  value  of  stability  in  enabling  the  nat- 
ural resources  of  these  two  countries  to  be  developed 
and  thus  their  commerce  increased. 

Isolated  and  widely  separated  as  are  the  islands  of 
the  Caribbean,  it  is  difficult  to  analyze  their  commerce 
as  a  whole ;  yet  its  nature  is  simple.  The  principal  prod- 
ucts are  those  of  tropical  agriculture.  Sugar-cane  is 
grown  in  the  majority  of  them.  After  it,  come  coffee, 
bananas,  and  other  fruits;  cacao,  tobacco,  hardwoods, 
and  dyewoods,  and  the  variety  of  tropical  products  which 
in  the  aggregate  form  a  considerable  element  in  ex- 
port trade,  although  the  separate  commodities  amount 
to  little  in  themselves.    It  is  apparent,  therefore,  that 


ECONOMIC  DESTINY  IN  THE  CARIBBEAN     235 

the  Caribbean  Islands  always  will  have  products  to  sell 
which  are  wanted  in  the  temperate  climate.  In  return 
they  require  the  products  of  temperate  agriculture, 
chiefly  flour  and  packing-house  goods,  and  manufactured 
articles,  including  large  quantities  of  textiles. 

Cuba  in  area,  population,  resources,  and  geographical 
situation  is  the  most  important  factor  in  present  and 
prospective  Caribbean  commerce.  The  island  industri- 
ally and  economically  is  a  prospective  four-million-ton- 
sugar-cane  proposition. 

Production  of  sugar-cane  has  not  yet  reached  the  maxi- 
mum. Under  the  control  of  Spain,  the  largest  crop  in 
the  history  of  the  island  up  to  that  time  was  obtained 
in  the  years  1894  and  1895.  In  each  of  those  twelve- 
month periods  it  slightly  exceeded  1,000,000  tons.  The 
insurrection  which  began  in  1895  destroyed  all  normal 
bases  of  production  until  1904,  when  the  output  again 
exceeded  a  million  tons.  From  this  time  on  the  increase 
was  steady  until  in  the  crop  year  1915-16  the  production 
was  in  excess  of  3,000,000  tons.  For  the  crop  year 
1917-18  it  was  larger.  In  1919  it  approximated  4,000,- 
000  tons.  With  world  peace  restored,  and  the  beet  sugar 
crop  of  the  European  countries  again  normalized,  Cuba 
cannot  look  forward  to  the  excessive  demand  of  the  war 
period  and  the  high  prices  then  prevailing ;  but  with  the 
consumption  in  the  United  States  constantly  increasing, 
she  can  depend  on  a  market  for  4,000,000  tons  and  up- 
ward at  good  average  prices.  This  assures  her  a  large 
purchasing  power. 

The  fine  tobacco,  with  its  excellence  of  leaf  for  flavor 
and  aroma  which  has  created  a  world-wide  demand,  is  of 
limited  productive  capacity.  This  is  shown  by  the  fail- 
ure to  increase  the  crop  during  the  periods  of  abnormally 


P 


"Prii 


H- 


236 


AMERICAN  FOREIGN  TRADE 


high  prices,  when  there  was  every  incentive  to  such  a 
demand.  The  Vuelta  Abajo  district  of  Pinar  del  Rio,  in 
which  the  very  finest  leaf  is  produced,  is  of  very  limited 
area.  The  Partidos  leaf,  which  is  grown  in  the  eastern 
part  of  the  province  of  Pinar  and  in  the  western  belt  of 
Habana  province,  is  also  of  limited  production.  Cuba 
may  count  on  50,000,000  pounds  of  tobacco  for  export. 
Because  of  its  high  quality,  this  is  a  sensible  addition  to 
the  sugar,  but  it  is  only  an  addition.  The  value  of  the 
sugar  products  is  tenfold  that  of  the  tobacco  products. 
Chiefly  because  of  the  sugar  crop,  Cuba  has  advanced 
from  a  foreign  commerce  of  |1 50,000,000  to  $700,000,000 
annually,  and  the  bulk  of  this  commerce  is  with  the 
United  States. 

In  the  economic  sense,  Porto  Rico  also  means  sugar, 
an  annual  crop  of  500,000  tons  being  the  normal  produc- 
tion. Coffee,  since  the  market  for  it  was  created  in  the 
United  States,  has  become  a  reliable  source  of  Income. 
The  trade  of  the  little  island  is  a  valuable  possession 
commercially,  but  the  mainland  of  the  United  States  is 
a  more  valuable  market  for  her  than  she  is  for  conti- 
nental United  States.  Her  commerce  with  all  countries 
is  a  trifle  in  comparison,  less  than  ten  per  cent,  of  both 
exports  and  imports.  It  must  be  considered,  neverthe- 
less, in  resolving  the  factors  of  Caribbean  commerce. 

Physically  and  productively  Haiti  and  Santo  Domingo 
are  one.  Politically  they  are  two  distinct  governments, 
with  a  frontier-line  and  with  a  racial  and  language  line 
also,  since  Haiti  is  the  Black  Republic,  whose  people 
speak  a  French  patois,  and  Santo  Domingo  is  Spanish 
in  race  and  language.  Haiti's  resources  consist  in  cof- 
fee, sugar,  fruits,  and  tropical  woods.     Santo  Domingo's 


i^ 


ECONOMIC  DESTINY  IN  THE  CARIBBEAN     237 

are  similar,  although  sugar,  cacao,  and  tobacco  are  more 
important  than  coffee. 

The  trade  prospect  as  to  Haiti  and  Santo  Domingo  is 
largely  a  political  one,  with  an  economic  background. 
The  prospect  as  to  the  British  West  Indies  is  an  economic 
one,  with  a  political  background.  Geography  is  a  de- 
termining factor. 

The  British  possessions  in  the  West  Indies  comprise 
twelve  thousand  square  miles  of  territory,  an  area  about 
equal  to  the  States  of  Delaware  and  Maryland.  The 
population  is  approximately  1,500,000  inhabitants.  The 
Bahama  group  of  scattered  coral  reefs  constitute  one 
third  of  the  area.  Outside  of  Bermuda,  they  are  of  no 
economic  value.  They  serve  chiefly  as  lighthouse  sta- 
tions. They  are  not  within  the  Caribbean  geographical 
sphere. 

The  Windward  and  Leeward  groups  of  the  Antilles, 
with  other  scattering  islands,  constitute  another  4000 
miles  of  area.  They  may  be  said  to  have  geographical 
homogeneity.  Barbadoes  and  Trinidad  are  the  chief  is- 
lands of  this  group.  They  are  on  the  outlying  rim  of 
the  Caribbean  crescent,  and  are  easily  accessible  on  the 
ocean  routes.  The  export  products  are  sugar,  cacao,  and 
other  tropical  agriculture.  Demerara,  off  the  South 
American  mainland,  is  the  chief  source  of  sugar  produc- 
tion. The  island  of  Trinidad,  which,  like  Demerara,  ap- 
pertains to  British  Guiana,  is  the  source  of  asphalt.  All 
these  islands  are  nearer  to  the  United  States  than  to  Eng- 
land by  from  one  thousand  to  fifteen  hundred  miles. 
Yet  they  lie  in  the  route  of  the  steamers  proceeding  from 
England  to  Panama,  and  they  have  direct  routes  of 
communication  with  the  United  Kingdom,  so  that  there 


238 


AMERICAN  FOREIGN  TRADE 


is  a  geographical  ground  on  which  to  foster  their  com- 
merce with  England. 

Jamaica  is  the  isolated  island.     She  lies  within  the 
hollow  of  the  connecting  chain  of  American  possessions 
and  protectorates,  of  which  the  outer  rim  is  Porto  Rico 
and  St.  Thomas,  and  the  inner  rim  Haiti,  Santo  Do- 
mingo, and  Cuba.     The  area  of  Jamaica  is  in  excess  of 
4000  square  miles,  or  more  than  one  half  the  habitable 
area  of  the  British  West  Indies.     The  population  is  be- 
tween 850,000  and  900,000,  or  considerably  more  than 
one  half  the  total  number  of  inhabitants  of  these  English 
possessions.     The  exports  to  the  United  States  comprise 
substantially  fifty  per  cent,  of  the  whole,  while  the  im- 
ports from  this  country  are  larger.    Approximately  half 
the  total  trade  of  the  British  West  Indies  is  the  trade  of 
Jamaica,  and  more  than  half  of  that  is  commerce  with 
the  United  States. 

The  abolition  of  slavery  in  Jamaica  in  1830  was  the 
death-knell  of  the  sugar  industry.  For  half  a  century 
after  freedom  this  industry  rose  and  fell  spasmodically, 
but  it  never  regained  its  former  activity.  Prosperity 
was  restored  to  the  island  when  a  Yankee  sea-captain 
put  the  fruit  industry  on  a  solid  footing  and  began  rais- 
ing bananas  for  shipment  to  15oston.  This  fruit  culture 
has  been  steadily  fomented  under  American  capital,  and 
the  result  has  been  that  some  British  capital  has  taken 
courage  and  has  built  up  a  ti-ade  in  bananas  and  oranges 

with  Jamaica. 

Nevertheless,  the  island  has  experienced  periods  of 
severe  economic  distress,  and  whenever  this  has  hap- 
pened, the  planters  and  the  business  men  have  agitated 
annexation  to  the  United  States.  The  population  of 
color,  negroes  and  maroons,  which  comprises  all  but  20,- 


•I'll 


ECONOMIC  DESTINY  IN  THE  CARIBBEAN     239 

000  of  the  inhabitants,  has  been  apathetic.  No  one  in 
the  United  States  has  paid  any  attention  to  Jamaica's  an- 
nexation suggestions,  and  good-natured  Americans  have 
been  mildly  astonished  occasionally  to  find  themselves 
attacked  as  Yankee  imperialists  who  were  bent  on  wrest- 
ing one  of  England's  numerous  ocean  gems  from  the 
crown  of  the  mother  country. 

When  projects  for  a  British-West  Indian  confedera- 
tion have  been  under  consideration,  Jamaica  always  has 
been  looked  on  as  one  of  the  prospective  members.  The 
navy  yard  at  Port  Royal,  across  from  Kingston,  has  been 
an  argument,  since  it  is  the  headquarters  of  the  British 
West  India  squadron.  There  are  also  historic  mem- 
ories and  sentiment,  but  in  the  economic  and  geographi- 
cal sense  Jamaica  has  nothing  to  bind  it  to  the  other 
British  possessions  in  the  Caribbean  or  to  Canada. 

The  project  of  a  Canadian-West  India  federation,  with 
the  dominion  as  the  dominating  element,  is  a  latter-day 
agitation.  Such  a  union  in  the  political  sense  is  so  im- 
probable as  to  require  little  consideration,  but  there  have 
been  tentatives  toward  closer  commercial  connection, 
with  a  view  both  to  trade  advantages  and  to  the  extension 
of  the  dominion's  political  influence. 

When  the  Canadian- West  Indian  trade  agreement  was 
negotiated  in  1913,  this  political  sentiment  was  given  ex- 
pression, and  those  of  the  colonies  which  were  holding 
back  received  strong  hints  from  London  that  the  Im- 
perial Government  desired  that  favorable  action  be 
taken.  The  principal  purpose  of  the  agreement  was  to 
give  the  dominion  flour  manufacturers  the  market  pre- 
viously held  by  the  flour-mills  of  the  United  States.  The 
only  concession  of  value  which  Canada  had  to  offer  was  a 
preference  on  sugar,  and  the  value  of  that  was  slight. 


^ 


240 


AMERICAN  FOREIGN  TRADE 


The  West  India  colonies  that  were  the  original  parties  to 
it  were  British  Guiana,  including  Demerara  and  Trini- 
dad, Barbadoes,  St.  Lucia,  St.  Vincent,  Montserrat,  An- 
tigua, and  St.  Kitts-Nevis.^ 

Jamaica,  notwithstanding  the  pressure  from  London 
and  from  the  other  British  West  Indies,  re-fused  to  par- 
ticipate in  the  negotiations.  She  w^as  afraid  that  if  she 
discriminated  against  American  flour,  the  United  States 
would  discriminate  against  lier  products.  Canada  of- 
fered little  in  the  way  of  an  advantageous  market  to  her, 
certainly  nothing  that  could  compensate  for  the  loss  of 
the  markets  of  the  United  States.  Notwithstanding  her 
refusal  to  participate,  Jamaica  was  voluntarily  given 
the  benefit  of  the  arrangement,  although  making  no  con- 
cession to  Canadian  flour.  At  the  end  of  the  three  years, 
however,  finding  that  the  United  States  continued  to 
give  her  a  free  market,  she  yielded  to  the  pressure  from 
London  and  Canada  and  entered  into  the  agreement. 

While  the  products  of  the  United  States  suffered  some 
inconvenience,  no  notable  change  resulted  in  the  com- 
merce of  the  British  West  Indies,  and  neither  Canada 

1  The  leading  points  in  the  agreement  are : 

A  The  concession  of  twenty  per  cent,  on  Canadian  products  im- 
ported into  the  colonies  as  against  the  duties  on  similar  goods  when 
imported  from  any  foreign  country.  There  is  a  spec^ial  provision  that 
on  flour  the  preference  in  favor  of  Canada  shall  not  at  any  time  be 
less  than  twelve  cents  per  hundred  pounds,  which  is  equivalent  to 
twenty-four  cents  a  barrel. 

B.  The  products  of  the  colonies  imported  into  Canada  are  given 
twenty  per  cent,  preference  on  similar  goods  imported  from  foreign 
countries.  On  sugar  the  preference  provided  is  more  than  twenty 
per  cent,  and  Canada  abrogates  a  concession  heretofore  given  to  foreign 
sugar  imported  for  refining  which  was  claimed  to  be  destructive  to  the 
West  Indian  preference.  ,   , 

C.  The  governments  of  the  various  colonies  and  of  the  Dominion  may 
provide  that  to  be  entitled  to  the  concessions  granie<l  to  the  products 
enumerated  these  products  shall  be  conveyed  by  direct  shipment. 


ECONOMIC  DESTINY  IN  THE  CARIBBEAN      241 

nor  they  reaped  a  discernible  benefit.  The  steamship 
sailings  between  Halifax  and  British  West  India  ports 
were  not  visibly  augmented,  and  the  dream  of  building 
up  a  Canadian  merchant  marine  with  a  West  India  base 
vanished. 

The  entire  scheme  is  artificial.  Geography  is  all 
against  it.  It  has  no  economic  foundation.  Yet  with 
the  impetus  given  to  the  imperial  impulse  by  the  war, 
the  project  may  again  be  agitated,  and  a  serious  effort  be 
made  to  form  a  Canadian-West  India  federation. 
Should  the  discriminating  duties  become  a  serious  hin- 
drance to  the  normal  trade  of  the  United  States,  the  Gov- 
ernment undoubtedly  will  find  a  remedy  in  its  own  tariff, 
and  then  the  question  will  arise  how  far  the  imperial 
impulse  can  struggle  against  geography  and  manifest 
destiny.  Jamaica  is  a  good  market  for  the  United 
States,  but  the  market  of  more  than  100,000,00  people  in 
the  United  States  is  a  better  one  for  Jamaica.  Economic 
gravitation  draws  Jamaica  to  the  United  States.  Impe- 
rial preference  cannot  change  this  condition,  although  it 
may  hold  out  the  promise  of  a  market  for  sugar, 
and  Jamaica  may  seek  to  favor  the  manufactured  pro- 
ducts of  the  United  Kingdom.  Commercial  union  with 
Canada  is  just  as  unpromising. 

There  remain  to  be  considered  the  Panamanian  and  the 
Central  American  shore  of  the  Caribbean.  The  opera- 
tion of  the  canal  and  the  employes  and  military  forces 
kept  on  the  zone  provide  a  market,  but  it  is  a  market 
that  cannot  be  considered  as  part  of  Panamaian  com- 
merce, since  the  Canal  Zone  is  both  administratively  and 
politically  territory  of  the  United  States.  Yet  the  move- 
ment of  supplies  creates  a  commercial  activity  in  which 
the  whole  isthmus  shares.    Apart  from  the  Canal  Zone, 


1^: 


242 


AMERICAN  FOREIGN  TRADE 


the  Republic  of  Panama  productively  is  the  source  of 
supply  to  the  United  States  for  bananas,  and  these  in 
themselves  form  a  considerable  commerce. 

Coffee  and  bananas  are  the  principal  export  products 
of  Central  America.  Salvador  is  the  only  one  of  the 
five  republics  which  lacks  a  frontage  on  the  Caribbean. 
Guatemala,  Nicaragua,  Honduras,  and  Costa  Rica  all 
look  from  their  shores  to  the  United  States.  The  pro- 
duction of  coffee  is  principally  on  the  highlands  of  the 
Pacific  slope,  and  the  canal  furnishes  the  convenient 
route  for  this  product,  which  has  its  best  market  in  Eu- 
rope. But  with  the  construction  of  interoceanic  rail- 
way lines,  and  the  development  of  the  interior  regions, 
the  natural  movement  will  be  for  a  greater  volume  of 
commerce  to  flow  out  from  the  Caribbean  ports,  Guate- 
mala and  Costa  Rica  now  have  interoceanic  lines,  and 
Nicaragua  will  have  them  in  the  course  of  time.  More- 
over, bananas,  which  are  the  most  promising  source  of 
productive  wealth,  are  grown  in  the  lowlands  of  the 
Caribbean  coast  region.  The  hardwood  forests,  which 
are  virtually  unexploited,  are  situated  in  this  region.  It 
is  also  the  seat  of  the  rubber  production.  The  sugar 
plantations  are  also  most  atM'essible  on  the  Atlantic  side. 

Aside  from  any  question  of  political  influence,  this 
means  that  the  control  of  ('entral  American  commerce 
rests  with  the  United  States.  The  Caribbean  ports  are 
natural  feeders  for  New  Orleans.  This  trend  of  the 
commerce  is  the  economic  sequel  to  the  extended  line  of 
the  national  defense  of  the  United  States,  which  begins 
with  the  naval  station  at  Guant^namo  in  Cuba,  embraces 
St.  Thomas,  and  follows  the  line  to  Panama.  Carib- 
bean commerce  and  destiny  merge. 

Much  of  the  trade  of  the  Central-American  countries 


ECONOMIC  DESTINY  IN  THE  CARIBBEAN      243 

in  the  present  day  has  resulted  from  investments  made  by 
companies  in  the  United  States.  The  commerce  which 
flows  across  the  Gulf  to  New  Orleans  and  out  through  the 
Atlantic  to  New  York  and  Boston  is,  therefore,  a  legiti- 
mate prize.  The  banana  industry,  which  is  the  princi- 
pal source  of  productive  wealth  on  the  Atlantic,  or  Carib- 
bean, slope,  is  almost  entirely  the  outcome  of  North 
American  investments.  Part  of  the  railway-building 
which  has  helped  to  develop  the  interior  regions  and  give 
their  products  an  outlet  to  the  coast  has  been  carried  on 
by  capitalists  in  the  United  States,  although  in  the  be- 
ginning they  borrowed  the  capital  in  England.  The 
total  investments  approximate  |50,000,000.  So  much  of 
Central  America  is  yet  undeveloped  that  these  invest- 
ments can  be  doubled  and  trebled  advantageously  to 
the  investors,  and  to  the  manufacturers  in  the  United 
States,  among  whom  new  business  will  be  created. 

There  is  a  broader  aspect  in  which  the  future  com- 
merce of  the  Caribbean  area  should  be  viewed.  It  re- 
lates to  increased  productiveness  and  increased  con- 
sumption considered  as  a  chapter  in  social  progress. 

There  is  a  favorite  illustration  of  the  productiveness 
of  the  Dakota  prairies  that  has  been  obtained  in  the  use 
of  improved  farm  machinery.  It  is  not  necessary  to  re- 
peat the  figures  of  the  increased  efficiency  of  a  single 
man  on  a  Dakota  farm  through  these  mechanical  aids. 
This  chapter  in  productiveness  has  many  blank  pages 
in  the  tropics.  Yet  the  use  of  machinery  has  greater 
significance  there,  because  of  the  inertia  of  white  labor 
and  the  insufficiency  of  black  labor.  The  farm  tractor 
is  just  at  the  beginning  of  a  period  of  added  productive- 
ness to  tropical  lands.  In  the  Caribbean  area  its  field 
of  utility  is  unrestricted.     It  is  reasonable  to  expect  that 


244 


AMERICAN  FOREIGN  TRADE 


within  a  few  years  there  will  be  a  notable  increase  in 
the  quantities  of  the  products  of  tropical  agriculture. 
The  consumers  are  already  close  at  hand.  They  move 
in  a  mass  southward  closer  to  their  markets.^ 

The  hundred  million  inhabitants  of  the  United  States 
increase  so  rapidly  that  within  a  short  period  the  added 
population  will  be  able  to  absorb  virtually  all  the  prod- 
ucts of  the  Caribbean  area.  They  will  supply  with 
manufactured  articles  the  markets  which  supply  them 
with  food  stuffs.  Propinquity  is  the  argument  both 
ways.  It  is  in  this  larger  aspect,  taken  with  the  po- 
litical protectorates  of  the  unstable  countries,  that  the 
economic  destiny  of  the  Caribbean  area  should  be  viewed. 

The  national  policy  of  the  ITnited  States  coincides  with 
the  economic  tendencies  of  the  Caribbean  area.  A  series 
of  conventions  or  treaties  affirms  it.  This  is  one  of  the 
few  instances  in  which  no  break  is  shown,  and  no  na- 
tional administration  overturns  the  policies  of  its  prede- 
cessor. The  policy  adopted  by  President  Taft's  admin- 
istration in  relation  to  Central  America  as  embodied  in 

1 "  The  old  theory  of  social  progress  assumed  that  national  and  race 
vitality  could  be  found  only  to  the  north  of  the  frost  line,  and  that  the 
nations  to  the  south  were  bound  to  be  defective  and  dependent.  All 
this  has  changed  in  recent  years  through  the  increased  control  of  dis- 
ease and  the  spread  of  better  industrial  conditions  in  southern  regions. 
The  center  of  civilization  at  the  present  time  is  15"  south  of  what 
it  was  a  century  ago.  As  good  a  civilization  can  now  be  maintained 
on  the  25th  degree  of  latitude  as  formerly  on  the  40th. 

"In  addition  to  this,  radical  modifications  in  our  diet  have  taken 
place  by  which  southern  foods  have  l>ecome  important  — so  important 
that  they  are  to-day  as  vital  an  element  in  our  diet  an  are  the  older 
products  of  northern  regions.  Sugar,  fruit,  rice,  bananas,  and  other 
tropical  plants  have  now  become  an  ensential  element  in  our  food  sup- 
ply, and  only  through  further  development  of  these  products  can  a  low 
cost  of  living  be  restored.  At  least  one-third  of  the  national  diet 
should  be  obtained  from  regions  south  of  the  25th  degree."—  Professor 

^IT^  f^;  .■^^**^°*  American  Academy  of  Political  and  Social  Science: 
Philadelphia,  1914. 


ECONOMIC  DESTINY  IN  THE  CARIBBEAN      245 

the  Nicaragua  treaty  was  accepted  and  carried  forward 
by  President  Wilson's  administration.  He  had  better 
success  than  his  predecessor  in  securing  ratification  of 
the  treaty,  which  insured  the  presence  of  American  ma- 
rines in  Nicaragua  as  a  means  of  preventing  domestic 
disorder.  The  marines  are  few  in  numbers,  but  their 
presence  is  a  distinct  moral  force.  It  gives  encourage- 
ment to  the  development  of  Nicaraguan  resources,  and 
it  is  an  invitation  for  the  investment  of  foreign  capital. 

In  Santo  Domingo  a  virtual  protectorate  was  estab- 
lished by  President  Wilson  without  the  formality  of  a 
treaty  or  convention.  Secretary  Root  had  negotiated 
an  agreement  under  which  payment  of  the  debt  of  Santo 
Domingo  was  provided  for,  and  the  possibility  of  Euro- 
pean intervention  in  the  interest  of  bondholders  was 
avoided.  Under  this  convention  the  collection  of  the 
revenue  was  supervised  by  the  United  States,  and  a 
certain  amount  set  aside  for  the  payment  of  interest 
and  the  amortization  of  the  principal.  The  arrangement 
worked  so  well  that  there  was  some  apprehension  lest 
the. debt  be  paid  off  too  rapidly. 

The  convention,  however,  did  not  provide  for  the  dis- 
bursement of  Santo  Domingo's  proportion  of  the  cus- 
toms receipts  or  for  the  collection  and  disbursement  of 
the  internal  revenue.  Consequently,  the  control  of  these 
revenues  became  the  ambition  of  the  politicians,  and  rev- 
olution followed  revolution. 

Secretary  Bryan  sought  to  overcome  the  temptation 
which  the  revenues  offered  by  extending  the  scope  of 
the  Root  convention  so  as  to  insure  supervision  of  the 
internal  revenue  as  well  as  the  customs  duties  and  the 
general  financial  management  of  the  country.  His  ac- 
tion was  resented  as  an  invasion  of  the  Dominican  sov- 


11 


246 


AMEEICAN  FOREIGN  TRADE 


ereignty.  The  revolutions  continued  until  the  Navy  De- 
partment, under  instructions  from  Washington,  took 
forcible  control  of  the  Government.  It  decided  who 
should  be  president,  established  a  rigid  press  censorship, 
dictated  tariff  schedules,  and  exercised  all  the  attributes 
of  sovereignty.  Gradually  the  conditions  Improved,  and 
the  naval  commander  allowed  the  press  some  privileges 
of  criticism.  The  Dominicans  have  not  become  fully 
reconciled  to  the  situation,  but  under  the  program  of 
the  national  administration  at  Washington  the  people 
of  the  country  may  look  forward  to  an  era  of  security 
and  of  political  stability,  so  that  in  time  a  new  treaty 
may  be  negotiated  establishing  the  definite  bases  of  a 
protectorate. 

This  was  the  course  followed  in  Haiti.  Washington 
grew  weary  of  the  relapses  into  bloody  barbarism.  The 
navy  of  the  United  States  took  control  in  on<i  of  the  worst 
periods  of  anarchy.  An  administration  and  a  congress 
were  set  up,  backed  by  the  marines.  With  this  execu- 
tive and  legislative  creation  a  treaty  was  negotiated, 
under  which  the  United  States  established  a  fiscal  pro- 
tectorate over  Haiti.  Care  was  taken  to  avoid  the  sug- 
gestion of  a  political  protectorate,  though  it  was  essen- 
tially such.  This  Haitian  treaty  is  one  of  the  most  im- 
portant steps  taken  by  President  Wilson's  administra- 
tion in  affirming  the  paramount  interests  of  the  United 
States  in  the  Caribbean.^ 

The  benevolent  coercion  exercised  in  Santo  Domingo 
and  Haiti  has  been  criticized,  but  its  results  are  its  jus- 
tification. When  the  time  comes  to  negotiate  a  new 
treaty  with  Haiti,  it  is  possible  that  the  American  ma- 
rines may  be  entirely  withdrawn  or  reduced  to  a  nominal 

1  For  full  text  of  the  treaty  see  Appendix  B. 


ECONOMIC  DESTINY  IN  THE  CARIBBEAN     247 

force,  as  in  Nicaragua.  But  whether  this  becomes  pos- 
sible in  ten  years  or  not,  there  will  be  the  opportunity 
for  peaceful  Haitians  to  enjoy  the  fruits  of  their  labor, 
and  there  will  be  added  the  enhanced  commerce  that 
comes  from  the  development  of  natural  resources.  The 
reciprocal  influence  on  trade  with  the  United  States 
will  be  definite,  but  it  will  not  be  because  of  any  selfish 
acts.  No  special  commercial  privileges  were  sought  by 
the  United  States.  European  countries  share  the  bene- 
fits of  stability  in  Haiti  and  Santo  Domingo  with  the 
United  States.  Their  capital  and  their  commerce  are 
protected. 

It  is  thus  that  the  Caribbean  area,  being  in  the  politi- 
cal sphere  as  well  as  in  the  economic  sphere  of  the  United 
States,  will  fulfil  its  chapter  in  manifest  destiny. 


CHAPTER  XVII 

CANADA^  THE  NATION  TO  THE  NORTH 

War  debt  and  peace  resources  —  Depth  of  national  spirit  —  Relation 
of  natural  resources  to  trade  — Fisheries  and  forests  —  Mineral  wealth 
—  Wheat-fields  of  the  Northwest  -  Other  crops  —  Reasons  for  daring 
railway  ventures  —  Basis  of  industrial  development  —  Iron  and  steel 
mills  — Fiscal  system  and  preferential  tariff  —  Pre-war  commerce  with 
Europe  — After-the-war  prospects  —  Trade  relations  with  the  United 
States  —  Reasons  for  rejecting  the  reciprocity  agreement  —  Close  busi- 
ness intercourse  in  the  future. 

CANADA  came  out  of  the  war  a  nation  of  fewer 
than  9,000,000  people,  with  a  debt  of  approxi- 
mately $1,950,000,000,  or  $220  for  each  inhabit- 
ant. This  is  almost  nine  per  cent,  of  her  total  national 
wealth,  which  has  been  estimated  at  117,000,000,000. ^ 

Aware  of  her  natural  resources  and  of  her  undevel- 
oped wealth,  Canada  faces  the  future  unflinchingly.  Yet 
there  are  grave  problems  to  be  solved,  some  of  them  eco- 
nomic and  some  of  them  international.  In  the  new  era 
the  dominion  must  adjust  her  development  to  the  broad- 
ened participation  in  the  affairs  and  the  responsibilities 
of  the  British  Empire,  participation  which  she  sought. 
This  includes  imperial  preference.  At  the  same  time 
she  must  recognize  the  kindlier  political  relations  and 
the  trend  to  closer  trade  relations  with  the  United  States. 

The  question  suggests  itself.  Why  speak  of  Canada 
as  a  nation,  since  the  Northern  commonwealth  has  been 

1./^^!?°^**®  °*  ^'  ^'  ^°^*^'  Dominion  statistician,   New  York  Sun 
May  27,  1919.  ' 

24« 


CANADA,  THE  NATION  TO  THE  NORTH     249 

among  the  foremost  in  demonstrating  her  loyalty  to 
England  as  the  mother  country,  has  contributed  unstint- 
edly of  her  means,  and  has  made  the  sacrificial  offering 
of  her  blood  to  maintain  the  empire  of  which  she  is  a 
part? 

It  is  the  national  spirit  of  a  people  that  makes  a  nation, 
and  this  national  spirit,  notwithstanding  the  super- 
loyalty  to  Great  Britain,  is  the  dominant  trait  of  the 
Canadian  people.  It  is  the  commonwealth  conscious- 
ness. A  few  years  ago  the  stranger  traveling  across  the 
dominion  from  the  Atlantic  seaboard  to  the  Pacific  was 
struck  by  a  seemingly  trifling  circumstance.  In  the 
Eastern  provinces  the  hotels  usually  bore  names  histor- 
ically identified  with  British  royalty.  King's  Hotel, 
Queen  Hotel,  the  King  Edward,  the  Victoria,  the  Wind- 
sor, were  the  common  titles,  and  still  are.  In  the  great 
Northwest,  amidst  the  billowy  wheat-fields,  there  were 
other  names.  Usually  they  were  of  the  province,  such 
as  the  Alberta,  the  Saskatchewan ;  or  they  might  be  of 
some  pioneer  or  successful  business  man  whose  public 
spirit  found  this  means  of  expression.  But  they  showed 
no  knowledge  of  British  royalty. 

The  "  opera-house  "  which  European  travelers  were 
accustomed  to  remark  as  a  characteristic  of  towns  and 
villages  in  the  United  States  was  equally  in  evidence  in 
the  new  Canadian  towns,  and  the  names  showed  no  rev- 
erence for  overseas  traditions.  It  was  the  prominent 
citizen  again  or  the  local  landmark.  In  the  Eastern 
provinces,  tradition;  in  the  West,  aspiration,  achieve- 
ment. Yet  Canada  could  not  be  considered  a  nation  if 
the  West  actually  was  separated  from  the  East  in  senti- 
ment. The  only  difference  is  that  in  the  Eastern  prov- 
inces the  national  spirit  has  not  the  same  exuberance. 


I 


250  AMERICAN  FOREIGN  TRADE 

But  in  everything  that  affects  Canada's  interests  it  is 
scarcely  less  pronounced. 

England  made  her  concession  after  the  rebellion  in 
1837,  when  she  accepted  the  recommendation  of  Lord 
Durham  and  left  the  Canadians  to  govern  themselves. 
When  the  provinces  were  merged  into  the  confederation 
in  1867,  the  free  play  of  the  national  spirit  was  manifest. 
England  kept  her  hold  by  acquiescing  not  only  in  sub- 
stantial  political  independence,  but  also  in  complete  fis- 
cal independence  for  the  dominion.  Canada  makes  her 
own  tariffs  and  determines  her  own  fiscal  policy.  It  is 
this  political  liberty  and  this  economic  f  niedom  of  action 
which  combine  to  stimulate  the  national  spirit.  At 
the  basis  of  it  all  is  the  consciousness  of  destiny.  This 
consciousness  is  grounded  on  the  knowledge  of  the 
varied  resources  of  the  dominion,  which  make  her  both 
an  agricultural  and  an  industrial  and  commercial  com- 
monwealth. 

The  principal  national  asset  of  Canada  is  her  agri- 
cultural resources ;  but  there  are  subsidiary  assets,  which 
include  the  forests,  the  mines,  and  the  fisheries,  and 
which  form  the  basis  of  national  industries.  The  re- 
lation that  the  natural  resources  bear  to  the  trade  of 
the  dominion  may  be  shown  graphically  by  a  tabular 
exhibit  of  domestic  exports,  which  at  the  same  time  pre- 
sents a  picture  of  the  degree  to  which  the  war  stimulated 
production  activity.  The  year  1913  was  one  of  Indus- 
trial  and  commercial  reaction  approaching  depression, 
yet  as  compared  with  the  following  year,  it  was  i)ros- 
perous.  The  year  1916  was  one  of  high  pressure,  muni- 
tion making,  feverish  activity.  This  is  the  comparative 
showing  in  that  mid-period  of  the  Great  War,  of  total 
imports  of  merchandise  and  of  exports  by  classes : 


CANADA,  THE  NATION  TO  THE  NORTH     251 

Calendar                                                     Imports  for  Exports  of 

year                                                          consumption  Canadian  produce 

1913 $659,064,000  $   436,218,000 

1916 766,501,000  1,091,706,000 

Exports  hy  cldssea 

1913  1916 

The  mine $  69,073,000  $  81,281,000 

The  fisheries 20,237,000  24,350,000 

The  forest   42,533,000  55,225,000 

Animal  products   51,613,000  117,910,000 

Agricultural  products 208,643,000  364,606,000 

Manufactures   54,01 1,000  440,477,000 

Miscellaneous   109,000  7,858,000 

The  increase  in  manufactured  articles  was  the  war 
phenomenon.  It  illustrates  what  the  dominion  con- 
tributed to  the  munitions  of  England  and  France,  but 
it  is  the  minor  factor  in  the  commerce  of  peace.  The 
growth  in  animal  and  agricultural  products  is  the  nota- 
ble peace  factor. 

The  harvest  of  the  seas  is  a  contribution  both  to  do- 
mestic consumption  and  to  foreign  trade.  The  sea-food 
resources  are  principally  on  the  Atlantic  coast,  although 
the  Pacific  coast  salmon  fisheries  are  of  consequence. 
The  policy  of  the  Dominion  Government  is  to  conserve 
and  foment  these  resources  by  proper  protection.  This 
is  possible  with  the  salmon  fisheries  of  the  rivers  of 
British  Columbia,  but  the  productive  forces  of  fish  life 
in  the  deep  seas  are  beyond  man's  ability  to  regulate. 
The  most  that  Canada  hopes  for  is  to  prevent  undue 
waste  in  drawing  them  from  the  ocean  waters  for  the 
uses  of  commerce. 

The  forests  are  one  of  the  great  permanent  sources 
of  national  wealth  to  Canada,  and  a  wise  conservation 
policy,  partly  based  on  observation  of  the  wasteful  policy 
of  the  United  States,  insures  their  preservation  to  the 


i. 


I 


252 


AMEEICAN  FOREIGN  TRADE 


I 


dominion.     The  timber  resources  are  mostly  to  be  found 
in  British  Columbia,  although  the  Maritime  Provinces 
and  Ontario  and  Quebec  have  considerable  pine.     The 
great  timber  wealth  of  these  Eastern  provinces,  and 
particularly  of  Quebec,  is  in  the  spruce,  or  pulp-wood. 
The  dependence  of  the  printing  press  on  Canadian  pulp- 
wood  is  too  well  known  to  require  explanation.     Canada 
has  utilized  it  in  building  up  a  news  print  industry  of 
her  own,  but  her  chief  industrial  gain  has  been  through 
requiring  the  logs  to  be  manufactured  into  wood-pulp 
before  the  product  can  be  exported.     This  is  done  by 
the  provinces,  and  particularly  by  the  Province  of  Que- 
bec, prohibiting  the  export  of  the  logs.     This  policy  has 
been  the  subject  of  remonstrance,  protest,  and  partial 
adjustment  on  the  part  of  the  United  States,  but  it  has 
not  resulted  in  Canada  parting  with  her  primary  ma- 
terial of  pulp-wood  in  the  crude  form. 

The  mineral  resources  are  widely  distributed.  They 
are  most  abundant  in  British  Columbia,  where  are  found 
gold  and  silver,  coal,  copper,  lead,  and  some  zinc.  Cop- 
per is  the  most  valuable  industrial  mineral.  Southern 
Alberta  has  coal.  Ontario  has  iron  ore  of  a  low  grade 
along  the  northern  shores  of  Lake  Superior.  It  also 
has  nickel,  which  is  almost  a  world  monopoly,  since  this 
mineral  is  produced  in  few  places.  Nova  Scotia  has 
coal,  which  is  the  basis  of  iron  and  steel  industries. 

Agriculture  is  the  enduring  foundation  of  Canada's 
natural  wealth.^ 

X  Computed  at  average  local  market  prices,  the  values  of  the  field 
IT  ^""Jf/J^^^  ^^  follows:  wheat,  $196,418,000;  oats,  $151,811,000- 
barley  $21,557  000;  rye,  $1,679,300;  peas,  $4,895,000;  beans  $1,884,300 
buckwheat  $6,213,000;  mixed  grains,  $10,759,400;  flax,  $7,368,000;  and 
corn  for  husking,  $9,808,000.  For  all  field  crops,  including  root  and 
I^fi^V/o°??;  Trl  *°*^i^^l"«  amounted  to  $639,061,300;  as  compared 
with  $552,771,500  m  1913,  the  increase  of  $86,289,800  being  chiefly  due 


CANADA,  THE  NATION  TO  THE  NORTH     253 

The  Eastern  provinces  produce  a  variety  of  export 
commodities  and  the  dairy  industry  is  an  important  fac- 
tor in  the  foreign  trade.  The  flour-mills  of  Ontario  and 
Quebec  depend  partly  on  the  wheat-fields  of  those  prov- 
inces. Their  production  is  about  30,000,000  bushels  an- 
nually, or  hardly  more  than  is  needed  for  local  consump- 
tion. 

The  wheat-fields  of  the  Northwest,  which  stretch  as  in 
a  vision  from  Manitoba  to  the  arctic  circle,  are  the  asset 
of  the  future  as  well  as  of  the  present.  It  is  not  given 
to  human  foresight  accurately  to  judge  their  probable 
productiveness.  The  minimum  estimate  of  Professor 
Mavor,  the  economist  who  in  1905  made  an  investigation 
for  the  British  Board  of  Trade,  was  300,000,000  bushels. 
The  maximum  estimate,  which  was  1,000,000,000  bushels, 
may  prove  a  wild  guess,  but  the  demonstration  can  come 
only  from  experience. 

The  possibilities  of  the  great  Mackenzie  basin  and  the 
Peace  River  region  are  for  the  future  to  uncover.  All 
that  so  far  is  known  is  that  the  wheat  area  gradually 
has  extended  beyond  Manitoba,  which  a  generation  ago 
was  thought  to  be  its  limit.  The  farther  north  cultiva- 
tion extends,  the  more  Canada  becomes  a  one-crop 
country,  with  all  the  uncertainties  that  result  from 
dependence  on  one  crop.  But  out  of  this  also  comes 
the  average  wheat  yield  that  may  be  expected  through 
a  period  of  years,  and  a  country^s  agricultural  wealth 
is  thus  to  be  measured  rather  than  by  a  single  bumper 
year  or  by  an  unusual  succession  of  bad  crops.  An  aver- 
age annual  crop  of  250,000,000  bushels  of  wheat  in  the 

to  the  enhancement  of  prices,  which  has  thus  more  than  counterbal- 
anced the  low  yields  of  grain  caused  by  the  drought.  Report  of  John 
G.  Foster,  American  Cousul-General  at  Ottawa,  1915. 


y 


254 


AMERICAN  FOREIGN  TRADE 


Canadian  Northwest  is  not  an  exaggerated  estimate. 

The  prospect  of  the  live-stock  industry  Is  a  mooted 
one,  but  climate  is  an  intractable  agent.  More  feed  is 
required  where  the  winters  are  longest.  That  is  axio- 
matic. Moreover,  mixed  farming,  and  even  wheat -grow- 
ing, offer  better  returns  in  the  Alberta  region,  where 
the  mild  chinook  winds  from  the  Japanese  current  en- 
couraged stock-raising  until  it  was  found  more  profitable 
to  devote  the  land  to  wheat  and  to  general  farming. 
Hog-raising  is  possible  only  on  a  limited  scale  in  the 
Eastern  proTinces,  where  corn  can  be  grown. 

Climate  bars  com,  or  maize,  in  the  great  Northwest. 
During  the  debate  on  the  Taft  Reciprocity  Agreement, 
some  congressmen  of  the  old-school  saw  the  ruin  of  the 
western  farmer  in  the  ITnited  States  because  Canadian 
corn  was  to  be  admitted  free.  Apparently,  they  thought 
that  the  Canadian  maize- fields  would  extend  up  to  the 
arctic  circle.  Corn,  of  course,  can  be  raised  in  the  ex- 
treme Northwest,  just  as  can  bananas  or  oranges;  but 
only  in  hothouses.  It  can  hardly  b(»  regarded  as  an 
element  of  Canadian  agricultural  wealth.  Mixed  farm- 
ing is  the  feature  of  agriculture  in  liritish  Columbia, 
while  orcharding  is  a  very  prosperous  industry;  but 
in  the  wildest  sense  the  live-stock  industry  and  mixed 
farming  are  to  be  considered  as  factors  in  domestic  pro- 
duction and  consumption  rather  than  in  the  Dominion's 
foreign  trade. 

Canada's  national  policy  has  been  an  evolution  from 
her  natural  resources.  The  first  need  was  of  transpor- 
tation. Consequently,  came  the  splendid  system  of 
canals  leading  through  the  Great  Lakes,  so  that  the 
wheat  found  an  outlet  to  the  Atlantic.  The  railways 
were  at  first  subsidiary.    Then  came  the  grand  dream 


CANADA,  THE  NATION  TO  THE  NORTH     255 

of  a  transcontinental  line.  Sir  John  Macdonald  bullied 
and  bribed  the  Canadian  Pacific  subsidy  through'  the 
Dominion  Parliament  in  the  face  of  strenuous  and  en- 
tirely sincere  opposition  because  of  supposed  natural 
obstacles.  At  that  time  the  Northern  Pacific  had  not 
been  constructed,  and  the  prophets  in  the  United  States 
who  foresaw  that  climatic  conditions  were  an  insuper- 
able obstacle  to  it  had  their  brother  prophets  in  Ottawa. 

The  Canadian  Pacific  was  followed  twenty  years  later 
by  the  project  of  the  Grand  Trunk  Pacific  hundreds  of 
miles  farther  north,  with  its  terminal  at  Prince  Rupert, 
and  then  by  the  Canada  Northern,  still  farther  north. 
The  war  found  these  projects  overwhelmed  with  financial 
burdens.  The  war  leaves  them  further  burdens  on  the 
hands  of  the  Government.  Whether  it  was  actually 
necessary  to  the  national  development  to  build  the  lines 
so  far  North  is  in  the  lap  of  the  future  to  determine. 
The  same  may  be  said  of  the  line  to  the  Hudson 
Bay.  Its  construction  is  a  simple  engineering  proposi- 
tion, and  its  operation,  under  unfavorable  climatic  con- 
ditions, is  not  impracticable;  but  the  problem  of 
warehousing  the  wheat  for  a  year  on  the  shores  of 
Hudson  Bay,  and  in  the  following  season  getting  it  out 
through  James  Bay  to  Liverpool,  is  a  serious  one. 

If  these  vast  railway  projects  fail  to  fulfil  their  pur- 
poses, the  statesmen  responsible  for  them  will  be  charged 
with  recklessness,  and  will  be  held  responsible  for  a 
losing  investment  of  hundreds  of  millions  of  dollars. 
But  they  will  not  be  responsible.  They  were  simply 
men  of  vision  who  responded  to  the  impulse  of  the  com- 
monwealth. They  would  not  be  statesmen  had  they  not 
undertaken  the  projects,  for  actual  experiment  was  the 
only  means  of  determining  the  feasibility  of  the  enter- 


: 

:;  k 

h 

s  « 


ii 


f 

t 

I 


256 


AMERICAN  FOREIGN  TRADE 


I 


■Wl 


prises.  The  national  spirit  of  Canada  would  not  be 
satisfied  with  anything  less  than  a  try-out,  and  it  is  the 
Canadian  nation  which  in  reality  is  back  of  them. 

The  industrial  development  of  Canada  has  been  a 
logical  one,  though  stimulated  by  artificial  means.  Pos- 
sessing the  mineral  resources  that  she  does,  the  adoption 
of  the  protective  policy,  which  essentially  is  a  national- 
istic policy,  was  inevitable.  The  raw  material  in  the 
form  of  water-power  was  a  contributing  cause. 

The  iron  and  steel  industry  is  situated  in  two  regions. 
One  of  these  is  the  Cape  Breton  district  of  Nova  Scotia, 
where  there  is  abundance  of  coal.  The  iron  ore  is  ob- 
tained from  the  Wabana  Range  of  Belle  Isle,  Newfound- 
land, and  also  from  Spain  and  Sweden.  The  favorable 
situation  at  tidewater  for  assembling  the  raw  material 
was  declared  to  be  ideal  for  cheap  pig-iron  production, 
and  the  development  of  enormous  plants  with  world 
markets  was  predicted  in  consequence.  An  industry  of 
some  importance  has  been  built  up,  but  the  early  dreams 
have  not  been  realized. 

The  establishment  of  iron  and  steel  mills  at  the  Sault 
Sainte  Marie  was  largely  a  matter  of  geography.  There 
was  some  local  ore  of  low  grade,  but  the  chief  consider- 
ation was  that  high-grade  ore  could  be  brought  cheaply 
across  Lake  Superior  from  the  Mesaba  Range,  and  coal 
be  obtained  from  Lake  Erie  ports,  while  there  was  the 
further  consideration  that  the  manufacture  of  steel  rails 
at  this  point  had  distinct  advantages  for  railway  con- 
struction through  the  Northwest.  The  iron  and  steel 
industry,  in  its  various  forms,  and  particularly  in  the 
production  of  pig-iron,  was  encouraged  by  heavy  sub- 
sidies and  bounties  both  from  the  Dominion  and  from  the 
Provincial  governments. 


h 


CANADA,  THE  NATION  TO  THE  NORTH     257 


How  far  the  general  industrial  development  was 
hastened,  if  at  all,  by  the  failure  to  secure  reciprocity 
with  the  United  States  necessarily  must  always  remain 
a  matter  of  opinion.  Under  the  policy  adopted  by  Can- 
ada many  industries  in  the  United  States  were  com- 
pelled to  establish  branch  factories  in  the  dominion. 
Some  of  these  branch  factories  undoubtedly  would  have 
been  provided  for  convenience  in  assembling  raw  ma- 
terial and  for  distribution  of  the  finished  products. 
Others  unquestionably  have  been  established  because 
the  fiscal  policy  of  the  Government  forced  it.  Without 
regard  to  their  relation  to  parent  industries  in  the 
United  States  they  are  Canadian  industries. 

Canada's  commercial  relations  are  of  a  mixed  char- 
acter. They  are  based  on  the  pre-war  European  con- 
struction of  the  favored  nation  treatment,  on  special 
trade  agreements,  and  on  a  triple  tariff  system.  The 
principle  of  preferential  rates  was  instituted  by  the 
Tariff  of  1907.  As  provided  for  by  that  act  and  in  sub- 
sequent legislation,  there  are  four  separate  schedules, 
the  general,  the  preferential,  the  surtax,  and  the  treaty 
rates.  The  preferential  is  reserved  for  products  of  the 
United  Kingdom  and  certain  British  possessions ;  treaty 
rates  are  comprised  in  the  intermediate,  which  repre- 
sents the  concessions  that  the  Government  makes  to 
other  countries  in  return  for  reciprocal  concessions ;  the 
general  tariff  is  applicable  to  imports  from  countries 
to  which  neither  of  the  other  schedules  has  been  ap- 
plied. The  surtax  is  the  fighting  rate  added  to  the  gen- 
eral tariff. 

The  British  preferential  schedule  originally  repre- 
sented a  preference  of  approximately  twenty  per  cent, 
over  the  intermediate  rates,  but  it  was  enlarged  until  it 


:f' 


\\ 


258 


AMERICAN  FOREIGN  TRADE 


I  >   I 


hi 


represented  on  most  commodities  an  advantage  equiva- 
lent to  thirty-three  per  cent.  In  the  war-revenue  leg- 
islation the  relative  advantage  of  the  British  preferen- 
tial was  increased.  Duties  applying  to  other  countries, 
principally  the  United  States,  were  advanced  seven  and 
one-half  per  cent.,  and  to  the  United  Kingdom  two  and 
one-half  per  cent. 

This  fiscal  legislation  was  supplemented  by  what  was 
known  as  the  anti-dumping  clause.  This  was  an  ingeni- 
ous provision  for  giving  further  protection  to  Canadian 
manufacturers  by  preventing  manufacturers  in  other 
countries  selling  at  lower  prices  in  the  dominion  than 
in  their  home  market.  It  was  aimed  chiefly  at  the 
United  States. 

Under  this  fiscal  arrangement,  which  was  in  effect 
when  the  Great  War  began,  according  to  the  Canadian 
import  statistics  the  United  States  was  selling  in  the 
dominion  market  goods  to  the  value  approximately  of 
1411,000,000 ;  the  United  Kingdom,  $132,000,000 ; 
France,  $14,250,000.  Canada,  whose  chief  export  com- 
modities were  agricultural  products,  was  sending  goods 
to  the  United  Kingdom  to  the  value  of  $222,300,000; 
to  the  United  States,  $200,500,000 ;  and  to  France,  $3,- 
800,000. 

Canada's  trade  relations  with  the  Allied  countries 
will  not  be  radically  changed  under  the  readjustment 
of  the  new  era.  They  are  likely  to  continue  on  the  basis 
of  the  present  intermediate  tariff  and  treaty  rates. 

Prance  is  the  only  one  of  the  Allied  European  coun- 
tries that  has  a  large  market  for  her  products  in  Can- 
ada, and  these  are  specialties.  Should  she  receive 
a  further  reduction  in  duties,  it  might  enable  her  to 
compete  better  with  Great  Britain  in  a  few  lines  of 


CANADA,  THE  NATION  TO  THE  NORTH     259 

light  manufacturing.  Canada,  on  her  part,  would  ex- 
pect entry  into  the  French  market  on  favorable  condi- 
tions. The  Franco-Canadian  trade  treaty  of  1911,  with 
its  curtailment  of  the  British  advantage  both  in  Canada 
and  in  France,  was  a  piece  of  very  delicate  trade  di- 
plomacy ;  but,  true  to  her  policy  of  non-interference  with 
the  economic  policies  of  the  colonies,  England 
acquiesced. 

With  old  Russia  Canada  had  slight  trade.  She  im- 
ported few  Russian  products,  but  she  would  like  the 
Russian  market  for  agricultural  machinery  on  pref- 
erential terms.  Russia  could  not  give  her  greater  ad- 
vantages than  were  conceded  to  the  British  Imperial 
Government,  and  was  not  in  a  position  to  discriminate 
against  the  United  States. 

Relations  with  the  enemy  countries  mean  Germany 
and  Austria-Hungary.  Turkey  and  Bulgaria  are  unim- 
portant. That  there  will  be  a  continued  discrimination 
against  the  products  of  the  former  Central  powers  is 
foreshadowed,  but  since  there  is  little  market  in  Canada 
for  Austrian  goods,  what  is  left  of  that  empire  w  ill  not 
be  seriously  disturbed.  Germany,  for  several  years, 
from  1903  to  1910,  was  subjected  to  the  surtax,  and  she 
denied  Canada  her  conventional  rates.  Both  countries 
felt  the  inconvenience,  and  an  arrangement  was  made 
under  which  certain  German  conventional  rates  were 
extended  to  Canada,  and  the  surtax  was  withdrawn. 
The  imports  from  Germany  in  the  fiscal  year  1914  were 
$14,500,000,  and  the  exports  $4,400,000.  In  the  future 
Germany's  chief  concern  will  be  over  the  attempt  to  de- 
prive her  of  raw  materials  for  her  industries. 

The  trade  relations  of  the  dominion  with  the  United 
States  are  a  chapter  in  themselves.    Geography  has  de- 


i 


260 


AMERICAN  FOREIGN  TRADE 


i 


creed  that  they  be  reciprocal.  This  was  the  aspiration 
of  Canadian  statesmen  long  before  the  confederation 
was  formed.  Reciprocity  was  established  by  the  Elgin- 
Marcy  Treaty  of  1854,  but  the  products  whose  exchange 
was  provided  for  in  that  arrangement  were  natural  ones. 
This  treaty  worked  more  to  the  direct  financial  advan- 
tage of  Canada  than  of  the  United  States,  yet  the 
disproportion  was  not  serious  enough  to  cause  its  abroga- 
tion by  the  United  States  in  1867,  had  not  the  resent- 
ment in  the  North  over  the  refuge  which  the  dominion 
had  afforded  to  the  partizans  of  the  South  bc^en  worked 
upon. 

After  the  abrogation  of  the  Elgin-Marcy  Treaty  there 
followed  the  period  of  pilgrimages  of  (^anadian  states- 
men to  Washington,  the  projects  for  commercial  union, 
for  complete  free  trade,  and  for  reciprocity  under  vari- 
ous forms,  which  were  ineffectually  supported  by  Ben- 
jamin Butterworth,  Robert  R.  Hitt,  and  other  far-sighted 
members  of  Congress.  The  continued  rebuffs  chilled 
the  Canadian  advocates  of  reciprocity,  and  the  pilgrim- 
ages closed.  When  the  Reciprocity  Agreement  of  1911 
was  negotiated  by  President  Taft  with  the  government 
of  Sir  Wilfrid  Laurier,  circumstances  in  the  dominion 
had  greatly  changed.  The  agreement  was  negotiated 
in  the  spirit  of  mutual  benefits.  Canadian  agricultural 
products  received  important  remissions  of  duty  into  the 
United  States,  while  there  were  similar  remissions  on 
the  products  of  the  United  States  into  Canada.  Con- 
trary to  a  widely  held  opinion,  Canada  offered,  and  still 
offers,  an  excellent  market  for  surplus  farm  produce  of 
the  States. 

The  motives  which  caused  Canada  to  reject  the  agree- 
ment after  it  had  been  enacted  into  law  by  the  Congress 


CANADA,  THE  NATION  TO  THE  NORTH     261 


of  the  United  States  were  her  own  affair  and  not  to 
be  questioned  by  a  friendly  government.  Nevertheless, 
in  passing,  some  of  the  reasons  which  influenced  the 
dominion  electorate  are  worth  analyzing.  One,  un- 
doubtedly, was  purely  political.  The  Liberal  party  had 
been  in  office  fourteen  years.  Like  all  political  organi- 
zations which  have  a  continuous  lease  of  power,  disaf- 
fection had  grown  up  inside  the  ranks.  Ambitious 
younger  men  found  that  the  path  to  preferment  was 
closed  to  them  by  their  elders.  Naturally  they  sought 
an  issue  which  would  enable  them  to  upset  the  existing 
leadership,  and  they  found  it  in  opposing  reciprocity. 

There  was  also  the  appeal  to  political  passion.  On 
its  surface  this  was  a  manifestation  of  loyalty  to  the 
mother  country.  Deeper,  it  was  the  assertion  of  the 
spirit  of  Canadian  nationality.  The  specter  of  annex- 
ation to  the  United  States  was  invoked  both  by  the  ultra- 
loyalists  and  by  the  nationalists.  The  utterances  of 
loose-thinking  and  careless-speaking  public  men  in  the 
United  States  contributed  to  stimulate  this  feeling  of 
nationality.  They  spoke  of  annexation  and  reciprocity 
as  if  reciprocity,  which  was  purely  an  economic  question, 
were  a  political  one.  In  the  appeal  to  passion  and 
prejudice  by  plausible  politicians  it  was  humorously  re- 
marked that  some  of  the  ultra-loyalists  in  the  Eastern 
provinces  thought  they  were  getting  even  for  the  perse- 
cutions of  their  ancestors,  the  Loyalists  of  the  American 
Revolution,  who  took  refuge  in  Canada. 

But  the  most  potent  consideration  was  material  and 
practical.  Canadian  manufacturers  were  alarmed  at 
the  prospect  of  a  broader  reciprocity  in  manufactured 
articles.  Powerful  transportation  companies,  which 
feared  that  the  bulk  of  the  wheat  crop  of  the  Northwest 


l! 


262 


AMERICAN  FOREIGN  TRADE 


would  be  carried  across  the  line  to  American  flour-mills, 
and  that  they  would  lose  considerable  traffic,  vigorously 
opposed  the  agreement.^ 

Equally  powerful  financial  influences  were  involved 
with  the  transportation  interests. 

Moreover,  a  perfectly  good  argument  was  put  forward 
by  the  opponents  of  reciprocity.  This  was  based  on 
political  portents  in  the  United  States.  The  signs  of 
a  reaction  were  fairly  clear,  and  it  was  a  reasonable 
deduction  that  the  party  would  soon  come  into  power 
which  would  reduce  duties  without  regard  to  the  action 
of  other  countries.  This  argument  was  justified  by 
events.  Under  the  tariff  law  of  1913  the  dominion  got 
for  nothing  all  that  she  made  concessions  to  obtain  in 
1911. 

The  rejection  of  the  Reciprocity  Agreement  by  Canada 
caused  no  resentment  in  the  United  States.  It  passed 
almost  without  comment.  It  cannot  be  assumed,  how- 
ever, that  Canada  will  continue  to  receive  all  the  benefits 
of  the  market  of  the  United  States  and  give  nothing  in 
return.  The  repeal  of  the  Reciprocity  Act  will  be  the 
first  step  toward  equalizing  the  benefits.^ 

During  the  very  dull  times  in  the  iron  and  steel  in- 
dustry in  1914  a  Western  railway  bought  rails  of  the 
Canadian  mills.  It  could  afford  to  do  this  because  there 
was  no  duty  on  the  entry  of  these  rails  into  the  United 
States,  but  the  mills  which  would  have  liked  to  supply 

1  A  provision  for  the  free  adminsion  of  wheat,  similar  to  that  in  the 
Reciprocity  Agreement,  was  contained  in  the  tariff  law  of  1913,  but  was 
ignored  by  the  Dominion  Government  until  April,  1917,  when  the  United 
States  had  entered  the  Great  War  on  the  side  of  the  Allies.  An  order 
in  council  was  then  passed  which  insured  free  wheat  between  the  two 
countries. 

2  As  this  book  goes  to  press  a  bill  to  repeal  the  Act  is  pending  in 
Congress. 


CANADA,  THE  NATION  OF  THE  NORTH     263 


the  Canadian  railways  were  kept  out  by  means  of  the 
dominion  duty,  in  addition  to  the  stringent  anti-dump- 
ing provisions.  This  is  a  condition  of  non-reciprocity 
which  is  not  likely  to  be  acquiesced  in  when  dull  times 
come  again  in  the  steel  trade.  The  same  observation 
applies  to  agricultural  implements  and  in  larger 
measure  to  agricultural  products. 

Imperial  preference  presents  vital  questions  to  Can- 
ada. Colonial  preference  was  not  at  bottom  an  eco- 
nomic policy.  It  was  granted  by  the  dominion  in  order 
to  secure  recognition  in  the  affairs  of  the  empire  as 
administered  from  London.  When  this  recognition  was 
not  granted,  the  policy  was  continued,  but  with  lessened 
enthusiasm.  Now  that  the  recognition  is  complete,  sen- 
timent will  be  very  strong  in  favor  of  tariff  discrimina- 
tions. This,  however,  will  not  be  at  the  expense  of  Can- 
ada. The  effort  will  be  to  extend  them  at  the  expense 
of  the  United  States.  This  was  the  policy  followed  dur- 
ing the  war  in  the  progressive-taxation  measures.  Yet 
the  trade  of  the  United  States  grew.  During  hostilities 
the  imports  from  the  United  States  ranged  from  seventy- 
five  per  cent,  up  to  eighty  per  cent,  of  the  total.  That 
is  the  normal  measure  of  the  business.  The  tendency  is 
strengthened  by  the  control  of  exchange  on  the  part  of 
New  York,  and  by  the  huge  volume  of  Canadian  securi- 
ties absorbed  during  the  war.  Provincial  and  munici- 
pal loans  were  taken  liberally  at  the  outset,  and  there 
was  no  cessation  in  the  movement.  London  had  ceased 
to  be  a  reservoir  of  capital  for  Canada,  and  imperial 
preference  cannot  alter  this  condition. 

Canada's  political  relations  with  the  United  States 
are  now  of  a  most  friendly  character.  Many  causes 
of  irritation,  some  of  them  a  century  old,  were  removed 


i 


2U 


AMERICAN  FOREIGN  TRADE 


when  Elihu  Root  was  secretary  of  state.  The  settlement 
of  the  Alaska  boundary  controversy,  the  Atlantic  fish- 
eries dispute,  and  numerous  other  controversial  ques- 
tions by  Mr.  Root  is  a  luminous  chapter  in  American 
diplomacy.  It  formed  an  enduring  basis  of  friendship 
and  of  cooperation.  It  opened  the  way  to  the  adjust- 
ment of  trade  relations  on  a  normal  basis  without  preju- 
dice or  resentment  on  either  side.  The  cooperation  of 
the  United  States  in  the  Great  War  has  immensely 
strengthened  the  friendly  feeling. 

Propinquity  has  decreed  that  Canada  shall  buy  largely 
of  the  United  States.  It  has  made  the  dominion  in 
effect  a  domestic  market,  notwithstanding  the  political 
separation  and  the  fiscal  barrier  of  a  tariff.  Equally, 
propinquity  has  made  the  United  States  a  domestic 
market  for  Canadian  products.  Commerce  with  the 
United  States  is  mutually  the  line  of  least  resistance. 
Geography  argues  effectively  against  undue  extension 
of  the  imperial  interests  in  economic  conditions  which 
are  the  basis  of  trade  relations.  In  the  adjustment  of 
these  trade  relations  Canada's  status  as  a  nation  is  more 
firmly  than  ever  established,  because  the  Imperial  Gov- 
ernment is  certain  to  acquiesce  in  whatever  the  common- 
wealth overseas  determines.  The  nation  to  the  north 
is  the  mistress  of  her  own  economic,  as  of  her  own  politi- 
cal, destiny.  But  she  is  destined  to  be  the  neighbor 
market  for  a  billion  dollars  worth  of  products  from  the 
United  States. 


CHAPTER  XVIII 

JAPAN  AND   MUTUAL  MARKETS 

New  riches  —  Herbert  Spencer's  rejected  advice  —  Gains  from  Western 
civilization  —  What  the  island  power  is —  Sparse  agricultural  re- 
sources —  Nationalization  of  raw  materials  —  Political  evolution  — 
Winning  of  economic  independence  —  Fiscal  policy  —  War  prosperity  — 
Fundamentals  of  future  commerce  —  Trade  relations  with  the  United 
States  —  The  Kjiox  Treaty  —  Questions  of  the  Pacific. 

JAPAN,  emergent  from  the  Great  War,  is  newly 
rich,  aggressive,  and  progressive.  Her  sacrifices, 
from  the  nature  of  her  geographical  situation,  re- 
mote from  the  scene  of  hostilities,  were  few.  Her  legiti- 
mate gains  were  many.  Industrially,  financially,  and 
commercially  she  is  immeasurably  strengthened.  Hep 
national  debts  in  1919  were  less  than  they  were  in  1914. 
She  was  a  creditor  for  loans  advanced  to  her  allies.  Her 
bank  deposits  had  increased  in  the  five-year  period  fifty 
per  cent.  Her  foreign  trade,  measured  both  in  exports 
and  in  imports,  had  gained  more  than  one  hundred  per 
cent.  It  was  approximately  $680,000,000  in  1914.  It 
exceeded  $1,600,000,000  in  1919.^  This  is  the  nation 
that  in  the  new  era  is  to  be  recognized  in  a  two-fold 
aspect  —  as  a  single  country  and  as  the  controlling 
Asiatic  power. 

Herbert  Spencer's  advice,  proffered  in  that  curious 
letter  to  Baron  Kaneko  in  1892,  for  Japan  to  remain  iso- 
lated from  Western  civilization,  reads  strangely  now. 
The  philosopher  would  have  had  Japan  maintain  the 

1"  Economic  and  Financial  Annual  of  Japan."    Tokyo,  1918. 

265 


n  r 


J  ■ 


204 


AMERICAN  FOREIGN  TRADE 


'■  >\ 


when  Elihu  Root  was  secretary  of  state.  The  settlement 
of  the  Alaska  boundary  controversy,  the  Atlantic  fish- 
eries dispute,  and  numerous  other  controversial  ques- 
tions by  Mr.  Root  is  a  luminous  chapter  in  American 
diplomacy.  It  formed  an  enduring  basis  of  friendship 
and  of  cooperation.  It  opened  the  way  to  the  adjust- 
ment of  trade  relations  on  a  normal  basis  without  preju- 
dice or  resentment  on  either  side.  The  cooperation  of 
the  United  States  in  the  Great  War  has  immensely 
strengthened  the  friendly  feeling. 

Propinquity  has  decreed  that  Canada  shall  buy  largely 
of  the  United  States.  It  has  made  the  dominion  in 
effect  a  domestic  market,  notwithstanding  the  political 
separation  and  the  fiscal  barrier  of  a  tariff.  Equally, 
propinquity  has  made  the  United  States  a  domestic 
market  for  Canadian  products.  Commerce  with  the 
United  States  is  mutually  the  line  of  least  resistance. 
Geography  argues  effectively  against  undue  extension 
of  the  imperial  interests  in  economic  conditions  which 
are  the  basis  of  trade  relations.  In  the  adjustment  of 
these  trade  relations  Canada's  status  as  a  nation  is  more 
firmly  than  ever  established,  because  the  Imperial  Gov- 
ernment is  certain  to  acquiesce  in  whatever  the  common- 
wealth overseas  determines.  The  nation  to  the  north 
is  the  mistress  of  her  own  economic,  as  of  her  own  politi- 
cal, destiny.  But  she  is  destined  to  be  the  neighbor 
market  for  a  billion  dollars  worth  of  products  from  the 
United  States. 


CHAPTER  XVIII 

JAPAN  AND  MUTUAL  MARKETS 

New  riches  —  Herbert  Spencer's  rejected  advice  —  Gains  from  Western 
civilization  —  What  the  island  power  is —  Sparse  agricultural  re- 
sources—  Nationalization  of  raw  materials  —  Political  evolution  — 
Winning  of  economic  independence  —  Fiscal  policy  —  War  prosperity  — 
Fimdamentals  of  future  commerce  —  Trade  relations  with  the  United 
States  —  The  Knox  Treaty  —  Questions  of  the  Pacific. 

JAPAN,  emergent  from  the  Great  War,  is  newly 
rich,  aggressive,  and  progressive.  Her  sacrifices, 
from  the  nature  of  her  geographical  situation,  re- 
mote from  the  scene  of  hostilities,  were  few.  Her  legiti- 
mate gains  were  many.  Industrially,  financially,  and 
commercially  she  is  immeasurably  strengthened.  Her 
national  debts  in  1919  were  less  than  they  were  in  1914. 
She  was  a  creditor  for  loans  advanced  to  her  allies.  Her 
bank  deposits  had  increased  in  the  five-year  period  fifty 
per  cent.  Her  foreign  trade,  measured  both  in  exports 
and  in  imports,  had  gained  more  than  one  hundred  per 
cent.  It  was  approximately  $680,000,000  in  1914.  It 
exceeded  $1,600,000,000  in  1919.^  This  is  the  nation 
that  in  the  new  era  is  to  be  recognized  in  a  two-fold 
aspect  —  as  a  single  country  and  as  the  controlling 
Asiatic  power. 

Herbert  Spencer's  advice,  proffered  in  that  curious 
letter  to  Baron  Kaneko  in  1892,  for  Japan  to  remain  iso- 
lated from  Western  civilization,  reads  strangely  now. 
The  philosopher  would  have  had  Japan  maintain  the 

1"  Economic  and  Financial  Annual  of  Japan."    Tokyo,  1918. 

266 


V  ft 


266 


AMERICAN  FOREIGN  TRADE 


civilization  of  the  Orient  as  against  the  Occident,  by 
keeping  foreigners  at  arm's-length,  by  preventing  them 
from  owning  land,  by  denying  them  commercial  privi- 
leges, by  prohibiting  them  working  the  mines,  and  by 
interdicting  intermarriage.  The  part)8  of  the  letter  re- 
lating to  inter-marriage  are  not  pertinent  to  his  views 
relating  to  commercial  intercourse  and  may  be  omitted. 
His  objection  to  permitting  foreigners  to  work  the  mines 
was  that  quarrels  probably  would  arise,  and  that  the 
Western  governments  would  send  armed  forces  to  en- 
force the  claims  of  their  nationals.  On  the  subject  of 
isolation  as  a  policy  his  words  were : 

The  Japanese  policy  should,  I  think,  be  that  of  keeping 
Americans  and  Europeans  as  much  as  possible  at  arm's  length. 
In  presence  of  the  more  powerful  races  your  position  is  one 
of  chronic  danger,  and  you  should  take  every  precaution  to 
give  as  little  foothold  as  possible  to  foreigners. 

It  seems  to  me  that  the  only  forms  of  intercourse  which 
you  may  with  advantage  permit,  are  those  which  are  indis- 
pensable for  the  exchange  of  commodities  —  importation  and 
exportation  of  physical  and  mental  products.  No  further 
privileges  should  be  allowed  to  people  of  other  races,  and 
especially  to  people  of  the  more  powerful  races,  than  is  ab- 
solutely needful  for  the  achievement  of  these  ends.  Appar- 
ently you  are  proposing  by  revision  of  the  treaty  with  the 
Powers  of  Europe  and  America  **  to  open  the  whole  empire 
to  foreigners  and  foreign  capital.'*  I  regret  this  as  a  fatal 
policy.  If  you  wish  to  see  what  is  likely  to  happen,  study 
the  history  of  India.  Once  let  one  of  the  more  powerful 
races  gain  a  point  d'appui  and  there  will  inevitably  in  course 
of  time  grow  up  an  aggressive  policy  which  will  lead  to  col- 
lisions with  the  Japanese ;  these  collisions  will  be  represented 
as  attacks  by  the  Japanese  which  must  be  avenged  as  the  case 
may  be ;  a  portion  of  territory  will  be  seized  and  required  to 
be  made  over  as  a  foreign  settlement;  and  from  this  there 
will  grow  eventually  subjugation  of  the  entire  Japanese  em- 


JAPAN  AND  MUTUAL  MARKETS 


267 


pire.  I  believe  that  you  will  have  great  difficulty  in  avoid- 
ing this  fate  in  any  case,  but  you  will  make  the  process  easy 
if  you  allow  of  any  privileges  to  foreigners  beyond  those 
which  I  have  indicated. 

Foreigners  should  not  hold  land. 

In  pursuance  of  the  advice  thus  generally  indicated,  I 
should  say,  that  there  should  be,  not  only  a  prohibition  of 
foreign  persons  to  hold  property  in  land,  but  also  a  refusal 
to  give  them  leases,  and  a  permission  only  to  reside  as  an- 
nual tenants. 

In  pursuance  of  the  policy  I  have  indicated,  you  ought 
also  to  keep  the  coasting  trade  in  your  own  hands  and  for- 
bid foreigners  to  engage  in  it.  This  coasting  trade  is  clearly 
not  included  in  the  requirement  I  have  indicated  as  the  sole 
one  to  be  recognized —  a  requirement  to  facilitate  exporta- 
tion and  importation  of  commodities.  The  distribution  of 
commodities  brought  to  Japan  from  other  places  may  be 
properly  left  to  the  Japanese  themselves,  and  should  be 
denied  to  foreigners,  for  the  reason  that  again  the  various 
transactions  involved  would  become  so  many  doors  open  to 
quarrels  and  resulting  aggressions. 

The  import  of  the  philosopher's  advice  was  to  reverse 
the  policy  that  had  been  initiated  when  Commodore 
Perry  opened  the  door  to  Western  civilization,  and 
Japan  welcomed  it.  Had  his  advice  been  followed  in 
the  sense  meant  of  Japan  isolating  herself  from  world 
affairs,  she  would  have  become  the  secluded  power  in- 
stead of  the  dominant  power  of  Asia.  Japan  rejected 
it,  and  placed  herself  on  an  equal  footing  with  Western 
powers ;  yet  it  is  to  be  observed  that  she  does  not  permit 
foreigners  to  own  land,  she  keeps  the  mines  under  gov- 
ernment control,  and,  without  denying  foreigners  par- 
ticipation in  the  coasting  trade,  she  keeps  the  mastery 
of  it. 

What  is  this  nation  which  looms  so  large  in  world 
trade? 


268 


AMERICAN  FOREIGN  TRADE 


It  is  an  island  power,  poor  in  natural  resources,  with 
an  area  of  260,000  square  miles,  or  about  that  of  the 
State  of  Texas,  with  a  population  of  57,000,000  inhabi- 
tants of  Japan  proper,  with  17,000,000  Koreans,  and 
3,600,000  Formosans,  thus  forming  an  economic  group 
of  more  than  77,000,000  people.  It  is  a  group  in  which 
the  birth-rate  outstrips  the  death-rate,  and  the  calcula- 
tion of  natural  increase  must  be  given  full  play  in  its 
economic  and  political  development. 

The  raw  resources  are  sparse.  Rice  is  the  chief  agri- 
cultural product,  and  is  also  the  principal  food,  though 
large  quantities  of  it  are  exported.  Wheat  is  produced 
insufficiently  for  a  population  a  small  proportion  of 
which  can  afford  a  wheat  diet.  Barley,  potatoes,  and 
rye  are  also  insufficient  crops.  There  is  some  tobacco 
and  soya-beans  for  export.  Domestic  animals  are  very 
scarce,  and  the  number  of  sheep  is  not  ecjual  to  those 
on  a  small  sheep-ranch  in  Wyoming.  Fish  is  abundant, 
and  is  a  staple  food,  second  only  to  rice.  Sugar  is  pro- 
duced in  Formosa,  and  is  exported,  although  there  is 
not  enough  of  it  to  supply  the  needs  of  more  than  a 
fraction  of  77,000,000  people  were  they  accustomed  to 
sugar.     Tobacco  is  raised  chiefly  for  export. 

Tea  is  the  principal  agricultural  crop,  and  is  pro- 
duced far  in  excess  of  the  domestic  demand.  Silk  cul- 
ture is  the  most  productive  native  industry.  A  native 
straw  is  grown  which  provides  material  for  plaiting 
and  for  hats.  The  native  clays  have  the  qualities  out 
of  which  fine  porcelain  is  developed,  and  they  form  the 
basis  of  a  profitable  industry. 

These  are  the  primary  resources  of  a  people  whose 
political  progress  has  been  simultaneous  with  their  in- 
dustrial development.    They  are  the  people  whose  silk 


JAPAN  AND  MUTUAL  MARKETS 


269 


of  their  own  raising  gave  them  the  key  to  a  phenomenally 
swift  transition  from  hand  labor  to  machinery.  It  was 
they  who,  showing  this  remarkable  facility,  established 
a  textile  industry  for  which  the  raw  wool  and  the  raw 
cotton  had  to  be  brought  from  other  countries.  It  was 
they  who  developed  a  ship-building  industry  of  their 
own  in  keeping  with  their  maritime  situation,  and  who 
have  established  iron  and  steel  industries  that  are  basic, 
although  not  yet  greatly  advanced. 

In  this  industrial  development  they  began  with  a 
policy  of  nationalization  of  the  raw  materials  that  lay 
beneath  the  surface  of  the  soil,  and  followed  it  with 
the  nationalization  of  the  systems  of  transportation, 
the  railways  being  brought  completely  under  govern- 
ment control,  and  the  steamship  lines,  by  means  of  sub- 
sidies, being  held  in  a  condition  of  subjection  equivalent 
to  making  them  government  steamship  lines.  In  the 
development  of  the  domestic  industries  the  protectionist 
policy  has  been  accepted  and  applied. 

The  political  evolution,  which  has  been  contemporane- 
ous with  this  industrial  development,  is  a  well-known 
chapter.  Only  its  outlines  need  be  given,  and  that  may 
be  done  very  briefly. 

The  Christian  powers,  after  Commodore  Perry  pried 
open  the  door,  were  not  ready  to  recognize  Japan  as 
a  fully  civilized  power.  In  the  treaties  of  1858  with 
Great  Britain  and  other  countries  she  parted  with  two 
essential  attributes  of  sovereignty.  Her  judicial  auton- 
omy was  restricted  by  the  functioning  of  the  foreign 
courts  with  their  extra-territorial  juris'diction.  Her 
economic  independence  was  smothered  under  the  fixed 
tariff  rates.  When  Japan  began  to  emerge  from  the 
old  order,  her  first  effort  was  to  regain  her  political  in- 


270 


AMERICAN  FOREIGN  TRADE 


dependence.  This  was  conceded  by  the  United  States 
in  the  treaty  of  1878,  but  it  was  non-effective  because 
the  other  powers  would  not  agree  to  it.  The  surrender 
of  extra-territorial  authority  and  of  customs  control  was 
not  won  from  the  European  powers  until  a  series  of 
treaties  were  negotiated  in  the  years  from  1894  to  1899. 
Her  right  to  control  her  own  fiscal  system  having  been 
acknowledged,  Japan  laid  the  foundation  of  her  com- 
mercial intercourse  with  the  rest  of  the  world  by  the 
tariff  treaties  of  1911. 

A  rapid  survey  will  show  how  native  industry  was 
developing  and  international  commerce  expanding  under 
these  trade-treaties.  In  the  tariff  of  1911  th<^  import 
duties  were  chiefly  specific.  Export  duties  had  been 
abolished  a  dozen  years  earlier.  Under  the  new 
schedules,  raw  materials  were  for  the  most  part  ad- 
mitted free,  and  semi  raw  materials  were  given  very 
light  imposts.  Manufactured  goods  paid  rates  rang- 
ing from  fifteen  per  cent,  to  forty  per  cent.,  accord- 
ing to  the  classification,  and  luxuries  paid  fifty  per 
cent. 

Japan  exported  raw  silk  and  silk  products,  copper 
in  semi-finished  form,  gold,  tea,  rice,  porcelains,  and 
plaited  straws,  principally  to  Europe  and  the  United 
States. 

She  exported,  mainly  to  China,  cotton  goods  and 
sugar.  She  also  exported  small  quantities  of  marine 
products,  oils  and  fats,  and  some  metal  manufactures. 
Her  principal  imports  were  grains  and  flour  and  sugar 
among  food  stuffs,  drugs  and  chemicals  and  oils  and 
waxes  for  domestic  consumption.  Cotton  to  feed  her 
mills  was  the  most  important  commodity.  There  was 
also  raw  wool.     Machines,  machinery,  and  miscellaneous 


JAPAN  AND  MUTUAL  MARKETS 


271 


iron  and  steel  products  furnished  the  category  of  manu- 
factured products. 

The  period  just  preceding  the  outbreak  of  the  Great 
War  found  Japan  in  the  valley  of  depression.  There 
was  an  adverse  balance  of  trade.  Industries  were 
greatly  depressed.  Commercial  movement  was  limited, 
while  finances  were  in  a  bad  state,  and  the  interest 
charges  on  the  national  debt  which  had  been  incurred 
in  the  war  with  Russia  was  an  oppressive  burden  that 
threatened  to  smother  the  industrial  life  of  the  people. 
These  unfavorable  circumstances  were  attributes  prin- 
cipally following  the  inflated  trade  and  finances  result- 
ing from  the  Russo-Japanese  War. 

In  the  first  stage  of  the  Great  War  the  depression 
was  accentuated  by  the  slump  in  the  exports  of  raw 
silk,  and  the  other  interferences  with  the  commodities 
of  international  commerce.  This  condition  did  not  last 
long.  England  knew  Japan's  industrial  capacity.  Mu- 
nitions orders  rolled  in.  The  shipyards  became  phe- 
nomenally active.  Vast  profits  poured  into  the  country 
from  the  merchant  marine.  These  profits  were  rein- 
vested in  chemical  and  industrial  factories  and  machine 
shops  which  provided  manufactures  that  could  not  be  ob- 
tained from  Europe  because  the  factories  there  were  too 
busy  making  raw  materials.  Some  machinery,  however, 
it  was  found  could  be  obtained,  and  the  United  States 
was  the  source  of  supply.  In  the  year  before  the  war 
iron  for  the  shipbuilding  and  metals  industry  had  been 
obtained  almost  exclusively  from  Great  Britain  and 
Germany.  England  was  able  to  supply  some  of  this 
material  still,  but  the  United  States  was  turned  to,  and 
until  it  entered  the  war  helped  fill  the  gap.  In  the 
supply  of  machinery  the  same  thing  happened. 


272 


AMERICAN  FOREIGN  TRADE 


Japan  continued  to  receive  raw  cotton  from  the 
United  States  without  interruption  until  the  armistice 
was  signed.  The  ending  of  hostilities  found  the  foreign 
trade  of  both  countries  visibly  in(^reased.  Its  funda- 
mentals have  not  changed  during  the  period  of  hostili- 
ties. They  are  the  fundamentals  of  future  trade,  and 
are  therefore  worth  analyzing.  In  the  year  before  the 
war,  in  addition  to  raw  cotton,  Japan  took  from  the 
United  States  some  flour,  considerable  kerosene,  some 
rails  and  locomotives,  bar  iron,  plates,  machinery,  and 
engines  and  construction  materials  generally. 

The  United  States  took  from  Japan  raw  silk  to  the 
amount  of  two-thirds  of  the  total  exports  of  this  product. 
During  the  war  the  figures  mounted  to  eighty-six  per 
cent.  It  also  took  tea,  and  the  variety  of  porcelains 
for  which  Japan  is  noted,  along  witli  straw  plaits,  mats, 
and  the  like.  These  commodities  may  be  said  to  be  the 
principal  products  of  exchange  in  the  future.  The  two 
countries  are  ideally  situated  for  mutual  commerce. 
The  United  States  can  absorb  large  quantities  of 
Japanese  products,  because  they  are  commodities  which 
it  does  not  produce  itself.  Japan,  on  her  part,  not- 
withstanding her  growth  as  an  industrial  nation,  is  in 
a  position  to  absorb  increasing  quantities  of  machinery 
and  iron  and  steel  products,  especially  for  shipbuilding, 
as  well  as  raw  cotton  for  her  textile  mills.  That  the  bal- 
ance of  trade  as  measured  in  values  runs  somewhat  in 
Japan's  favor  does  not  prejudice  the  desirability  of  the 
United  States  maintaining  and  fomenting  this  inter- 
course. It  is  a  commerce  that  will  mount  rapidly  to  a 
quarter  of  a  billion  dollars  annually  even  with  decreas- 
ing values.  After  that  the  growth  may  be  more  gradual, 
but  none  the  less  certain. 


JAPAN  AND  MUTUAL  MARKETS    273 

Trade  relations  between  Japan  and  the  United  States 
may  be  said  to  rest  on  the  Knox  Treaty  of  1911.  Its 
provisions  concerning  commerce  embody  the  favored- 
nation  treaty  under  the  American  construction.  They 
are  found  in  two  articles. 

Article  V.  The  import  duties  on  articles,  the  produce  or 
manufacture  of  the  territories  of  one  of  the  High  Contract- 
ing Parties,  upon  importation  into  the  territory  of  the  other, 
shall  henceforth  be  regulated  either  by  treaty  between  the 
two  countries  or  by  the  internal  legislation  of  each. 

Neither  Contracting  Parties  shall  impose  any  other  or 
higher  duties  or  charges  on  the  exportation  of  any  article 
to  the  territories  of  the  other  than  are  or  may  be  payable 
on  the  exportation  of  the  like  article  to  any  other  foreign 
country. 

Nor  shall  any  prohibition  be  imposed  by  either  country 
on  the  importation  or  exportation  of  any  article  from  or  to 
the  territories  of  the  other  which  shall  not  equally  extend  to 
the  like  article  imported  from  or  exported  to  any  other  coun- 
try. The  last  provision  is  not,  however,  applicable  to  pro- 
hibitions or  restrictions  maintained  or  imposed  as  sanitary 
measures  or  for  purposes  of  protecting  animals  and  useful 
plants. 

Article  XIV.  Except  as  otherwise  expressly  provided  in 
this  treaty,  the  High  Contracting  Parties  agree  that,  in  all 
that  concerns  commerce  and  navigation,  and  privilege,  favor 
or  immunity  which  either  Contracting  Party  has  actuaUy 
granted,  or  may  hereafter  grant,  to  the  citizens  or  subjects 
of  any  other  State  shall  be  extended  to  the  citizens  or  sub- 
jects of  the  other  Contracting  Party  gratuitously,  if  the  con- 
cession m  favor  of  that  other  State  shall  have  been  gratuitous, 
and  on  the  same  or  equivalent  conditions,  if  the  concession 
shall  have  been  conditional. 

A  protocol  in  the  treaty  provides  for  the  continuance 
of  commercial  relations  on  the  preexisting  basis  until 
the  conclusion  of  a  treaty  relating  to  tariff.    From  this 


274 


AMERICAN  FOREIGN  TRADE 


it  is  evident  that  a  special  convention  was  in  mind  as 
a  basis  for  trade  relations.  Such  a  convention  would 
be  a  reciprocal  one  in  which  there  would  be  little  diffi- 
culty in  making  mutual  concessions.  The  question  is 
how  far  Japan  would  go  in  making  genuine  concessions 
to  the  products  of  the  United  States. 

The  Anglo- Japanese  Treaty  of  1911  did  not  discrimi- 
nate against  American  products.  Under  the  favored-na- 
tion clause  the  United  States  got  similar  treatment  for 
its  products;  but  since  the  Japanese  tariff  was  framed 
chiefly  with  a  view  to  making  concessions  to  English 
goods,  there  was  little  actual  advantage  to  this  country. 
When  it  comes  to  negotiating  a  trade  treaty  with  Japan, 
the  United  States  will  be  justified  in  insisting  on  con- 
cessions that  are  of  real  benefit  to  its  products.  The 
balance  of  trade  will  be  likely  to  continue  in  favor  of 
Japan  under  any  commercial  arrangement  that  may  be 
effected,  since  the  United  States  has  greater  powers  of 
absorbing  Japanese  products  than  Japan  has  of  absorb- 
ing the  products  of  the  United  States. 

The  increasing  importance  of  the  United  States  in 
the  trade  of  Japan  has  been  set  forth  in  an  authoritative 
official  manner: 

Twenty  years  have  brought  about  striking  changes  in  the 
distribution  of  Japan's  exports  and  imports  among  the  in- 
dividual countries  which  have  shared  in  the  total  trade.  In 
early  years  Great  Britain  was  the  most  important  source  of 
Japan's  imports,  but  she  took  only  a  small  share  of  Japan's 
exports;  the  United  States  took  as  large  a  proportion  of 
Japan's  exports  as  Great  Britain  contributed  to  the  imports, 
but  sent  to  Japan  in  return  only  about  two-thirds  the  amount 
of  imports  supplied  to  Great  Britain.  By  1913  Great  Britain 
and  the  United  States  were  contributing  almost  equally  to 
Japan's  imports,  but  the  United  States  was  taking  of  Japan's 


JAPAN  AND  MUTUAL  MARKETS 


275 


exports  almost  six  times  as  much  as  the  share  taken  by  Great 
Britain. 

The  United  States  has  been  for  a  long  period  the  most  im- 
portant market  for  Japanese  exports.  In  one  year  only  since 
1897  have  the  Japanese  exports  to  the  United  States  been  ex- 
ceeded by  those  to  any  other  country :  In  1905,  as  a  result  of 
exceptional  conditions  arising  from  the  Russo-Japanese  War 
then  in  progress,  the  exports  to  China  exceeded  those  to  the 
United  States.  In  all  other  years  since  1897  the  exports  to 
the  United  States  have  been  considerably  greater  than  those 
to  any  other  country,  the  exports  to  China  generally  being 
next  in  importance.  In  1913  the  figures  were  as  follows: 
Exports  to  all  countries,  632,460,000  yen;  United  States 
184,000,000  yen ;  China,  154,000,000  yen ;  France,  60,000,000 
yen ;  Great  Britain,  32,800,000  yen ;  British  India,  29,800,000 
yen;  Italy,  29,400,000  yen.  In  that  year  the  United  States 
took  29.2  per  cent  of  the  total  Japanese  exports,  as  compared 
with  24.3  per  cent  to  China,  and  19.3  per  cent  to  France, 
Great  Britain  and  Italy  combined. 

A  review  of  tfee  export  trade  of  Japan  during  the  last  20 
years  shows  that  at  no  time  has  the  United  States  taken  less 
than  25  per  cent  of  the  Japanese  exports,  while  from  1907  to 
1916  the  exports  to  the  United  States  averaged  31.1  per  cent 
of  the  total  exports.  The  highest  percentage  ever  taken  by 
China  was  27.7  in  1906,  during  the  Russo-Japanese  War ;  in 
other  years  the  percentage  of  the  total  exports  shipped  to 
China  was  considerably  less.  The  British  maximum  was  12.6 
per  cent,  in  1917 ;  the  greatest  proportion  ever  sent  to  British 
India  was  6.3  per  cent,  in  1916.  In  most  years  the  exports 
to  the  United  States  exceeded  those  to  any  other  three  coun- 
tries combined.  Of  Japan's  greatly  increased  exports  in 
1916  and  1917,  30.2  and  29.8  per  cent,  respectively,  were 
sent  to  the  United  States.  The  United  States  has  for  a 
long  time  been  and  remains  the  best  market  for  Japan 's  ex- 
ports.^ 

The  review  of  their  actual  trade  shows  how  much 

/"Japan:     Trade  During  the  War."    United  States  TariflF  Commis- 
sion:    Washington,  1919. 


!  !■■ 


276 


AMEEICAN  FOREIGN  TRADE 


Japan  and  the  United  States  have  in  common.  The 
r6sum6  of  the  trade  relations  demonstrates  that  these 
are  easy  of  adjustment.  Every  sign,  therefore,  points 
to  a  beneficial  mutual  commerce  between  Japan  and 
the  United  States,  since  the  markets  are  literally  mutual. 
This  normal  trade  is  not,  however,  the  end  of  all.  There 
is  other  trade  in  the  Orient,  on  the  Asiatic  mainland, 
which  is  of  immeasurable  concern  both  to  Japan  and  to 
the  United  States.  It  relates  principally  to  China,  but 
it  embraces  virtually  the  whole  question  of  the  Pacific, 
whether  the  mastery  of  the  Pacific,  the  supremacy  of 
the  Pacific,  or  the  sharing  of  the  Pacific  is  in  mind. 


CHAPTER  XIX 

CHINA  AND  THE  COMMERCE  OF  THE  PACIFIC 

Economic  definition  —  Mineral  resources  —  Nature  of  foreign  trade  — 
Small  volume  —  Relations  with  other  countries  —  John  Hay's  open  door 
—  Root-Takahira  Declaration  —  Lansing-Ishii  Agreement  —  China's  own 
statement  —  Japan's  economic  overlordship  —  Outcome  at  peace  confer- 
ence —  Bankers'  loans  —  Influence  on  material  development  —  Fiscal  pol- 
icy  —  Economic  independence  the  acid  teat  for  the  great  powers  — 
United  States  as  an  interested  friend. 

WHAT  is  China? 
The  question  must  be  answered  variously. 
Historically,  she  is  a  static  nation,  with 
occasional  signs  of  dynamic  forces  working  upward  from 
beneath  the  ossified  crust  of  her  ancient  civilization. 
Geographically,  viewed  as  China  proper,  with  Man- 
churia included,  and  with  Mongolia,  Tibet,  and  Turkes- 
tan excluded,  she  is  an  area  of  a  million  nine  hundred 
thousand  square  miles,  with  every  variety  of  climate, 
and  with  three  hundred  and  fifty  million  inhabitants 
settled  over  that  area.  Industrially,  through  her  min- 
eral resources,  she  is  the  vast  reserve  of  the  Asiatic 
continent.  Fiscally,  she  is  a  medley.  Internationally, 
she  is  a  world  problem.  Diplomatically,  she  is  a  dere- 
lict.    Nationalistically,  she  is  an  enigma. 

The  first  concern  is  with  China  economically,  which 
means  with  her  as  the  region  whose  productive  resources 
mark  her  as  the  market  of  the  years  to  come.  The  in- 
dustrial perspective  is  of  raw  materials ;  the  trade  pros- 

277 


278 


AMERICAN  FOEEIGN  TRADE 


CHINA  AND  THE  PACIFIC 


279 


I       I 


pect  is  of  the  wants  which  those  three  hundred  and  fifty 
million  people,  constituted  as  a  single  body  of  consumers, 
may  acquire  and  of  the  articles  they,  constituted  as  a 
single  body  of  producers,  may  provide  for  sale. 

Agriculture  is  the  chief  source  of  actual  buying  power 
in  the  raw  materials  that  go  abroad.  The  mulberry-tree 
is  the  fruitful  factor,  for  raw  silk  is  the  most  valuable 
product  that  is  obtained  for  export.  After  it  come 
soya-beans  and  other  oil  seeds;  tea,  skins,  hides  and 
furs,  medicinal  herbs,  nuts,  oils,  and  some  wool  and  raw 
cotton,  which  in  the  economic  sense  would  be  better 
utilized  at  home. 

Mineral  resources  are  the  potential  purchasing  power, 


for  they  are  the  industrial  reserve.  Some  of  them,~aJ 
in  the  case  of  tin,  are  also  the  active  element  among  the 
raw  materials.  There  are  twenty-five  or  twenty-six 
kinds  of  minerals  found  within  tlie  borders  of  China. 
The  tin  amounts  to  five  per  cent,  of  the  world  production 
of  this  metal,  and  there  are  large  deposits  yet  untouched. 
There  is  lead  and  zinc  and  antimony  in  exportable 
quantities.  There  is  also  copper,  some  of  which  is  ex- 
ported, although  this  metal  is  used  so  largely  in  the 
coinage  of  China  that  for  reasons  of  geography  quanti- 
ties of  it  have  to  be  imported  to  meet  this  use.  Oil 
exists  in  quantities  which  are  yet  only  guesswork,  but 
the  extent  of  which  is  demonstrated  to  be  a  genuine 
national  asset. 

Coal  and  iron  ore  are  the  dominating  economic  fac- 
tors that  show  the  industrial  possibilities  of  China.  In 
a  general  r^sum6  it  is  not  necessary  to  exhibit  in  detail 
the  geographical  situation  of  these  minerals  or  to  specify 
where  they  lie  in  proximity,  so  that  they  may  become 
the  basis  of  iron  and  steel  works.    The  relation  of  the 


iron  and  coal  deposits  to  railway  building  and  internal 
development  may  be  inferred. 

Coal  reserves  are  estimated  scientifically,  and  not 
speculatively,  at  a  thousand  billion  tons,  or,  aa  it  is  put 
graphically,  sufficient  to  keep  the  world  going  at  its 
present  rate  for  a  thousand  years.  ^ 

Iron  ore  reserves  are  estimated  at  a  half  billion  tons. 
This  estimate,  like  that  of  coal,  has  a  scientific  basis, 
and  is  not  speculative.  The  known  ores  available  for 
treatment  have  been  mapped  out  in  connection  with  the 
various  foreign  concessions,  and  they  are  the  basis  of 
the  estimate. 

Industry  is  declared  by  some  observers  to  be  the  pre- 
dominant attribute  of  the  Chinese  people.  Whether 
they  really  have  a  passion  for  labor,  as  has  been  asserted, 
or  whether  their  laboriousness  is  due  to  the  harsh  neces- 
sities of  providing  existence,  may  be  left  to  individual 
opinion.  But  it  is  the  testimony  of  those  who  best  know 
the  people  that  their  industrial  faculties  are  highly  de- 
veloped. The  Chinese  finger  has  a  suppleness  and 
delicacy  of  touch  which  has  given  rise  to  numerous 
artistic  products,  such  as  intricate  wood-carving,  ivory 
miniature  painting,  and  fine  embroidery.  But  it  is  not 
simply  in  articles  of  delicate  production  for  which 
manual  dexterity  is  required  that  the  Chinese  are  effi- 
cient.    They  have  other  qualities. 

The  pig-iron  of  the  blast-furnaces  in  Manchuria  and 
the  steel-making  plant  at  Han-yang  are  the  examples' 
most  often  cited  of  their  capacity  for  physical  labor  of 
the  most  exacting  kind.  It  is  doubtless  true  that  the 
Chinese  have  a  double  capacity  of  muscle  and  of  brain, 

loiT^^^^*^  °^  ^*  ^'  ^^°^'  Director  of  the  Geological  Survey  of  China, 


280 


AMERICAN  FOREIGN  TRADE 


CHINA  AND  THE  PACIFIC 


281 


J 


but  in  the  broader  generalization  the  population  as  a 
whole  may  be  said  to  fit  the  statement,  that  the  Chinaman 
fulfils  in  the  highest  degree  the  ideal  of  an  intelligent 
human  machine.  What  this  people  ultimately  may  ac- 
complish when  they  become  fully  molded  to  the  new 
enterprises  that  fall  outside  of  tradition  is  conjectural. 
It  is  a  conjecture,  however,  which  must  be  borne  in  mind 
in  every  discussion  of  the  resources  of  the  vast  territory 
and  the  transference  of  raw  material  into  finished 
products.  It  also  must  not  be  forgotten  in  seeking  to 
soite-tbe-politicaL_prpblfinisutha^-€fcm  ^eptain^-ta^ariae. 

The  foreign  commerce  of  China  follows  elementary 
lines.  The  market  abroad,  which  includes  proximate 
countries,  such  as  Japan,  is  for  raw  silk,  raw  cotton, 
tea,  oil  seeds,  wood  oils,  fertilizers,  wools,  hides  and 
skins,  and  some  metals.  The  oil  seeds  furnish  the 
largest  single  export  product  after  raw  silk.  Antimony 
and  tin  are  the  principal  metal  products. 

The  import  needs  in  existing  circumstances  are  kero- 
sene, cotton  fabrics  of  all  kinds,  some  woolens,  drugs  and 
medicines,  soaps,  electrical  apparatus,  and  railway  ma- 
terial. The  latter,  along  with  machinery,  ia  fhp_pn- 
tential  import  Q£..t,ho  fntmy  rather  than  nf  the  prPHCflt. 

Foreign  trade  is  surprisingly  small  in  volume  in  view 
of  the  productive  resources  of  the  country  and  the  vast 
population  to  be  supplied.  In  the  year  before  the  Great 
War  it  was  approximately  only  half  a  billion  dollars. 
In  the  closing  year  of  the  war  the  total  was  about  the 
same.  The  exports  in  1914  were  315,281,000  Haikwan 
taels;  the  imports  557,109,000  taels.  The  fluctuating 
value  of  the  tael  accounts  for  the  conflicting  figures  re- 
lating to  China's  commerce  in  different  years.    The  phe- 


nomenal increase  in  the  value  of  silver  during  the  war 
added  to  the  difficulty  in  making  statistical  comparisons. 

In  1917  the  high-water  mark  of  the  trade  was  reached, 
when  it  amounted  in  round  numbers  to  a  billion  dollars. 
Yet  this  meant  purchases  abroad  of  less  than  two  dol- 
lars per  person,  and  sales  abroad  in  lesser  proportion. 
Australia,  with  a  population  of  five  million,  buys  and 
sells  as  much  as  China,  with  three  hundred  and  fifty 
million  inhabitants.  Its  foreign  trade  equals  three 
quarters  of  a  billion  dollars  which  is  fully  the  average 
of  China  in  ordinary  years. 

The  trade  of  the  United  States  with  China  and  her 
three  hundred  and  fifty  million  consumers  is  worth  no 
more  than  one-half  the  trade  with  Chile,  which  has  four 
million  consumers.  In  ten  years  it  showed  no  real 
growth,  although  a  somewhat  larger  volume  of  China's 
products  was  absorbed.  The  exports  from  the  United 
States  in  1907  were  approximately  $25,000,000,  and  in 
1916,  with  the  inflated  war  values,  they  were  also 
125,000,000.  There  was  an  actual  falling  off  in  quanti- 
ties. Cotton  goods,  kerosene,  sewing  machines,  and 
similar  articles  form  the  bulk  of  these  exports.  Against 
these  are  principally  the  imports  of  raw  silk. 

A  balance  in  favor  of  China  is  not  a  discouraging 
factor.  What  is  discouraging  is  the  small  volume  and 
value  of  the  total  trade.  Yet  relatively  speaking,  it  is 
no  more  discouraging  for  the  United  States  than  for 
other  countries.  Great  Britain's  total  trade,  notwith- 
standing she  has  been  long  in  the  Orient  and  has  made 
heavy  investments  in  Chinese  business,  is  relatively  not 
larger.  In  the  year  before  the  war  it  was  a  fraction 
under  a  hundred  and  ninety-two  million  taels.     There 


282 


AMERICAN  FOREIGN  TRADE 


CHINA  AND  THE  PACIFIC 


283 


t 


was  some  decrease  in  China's  total  trade  on  account  of 
the  war,  but  it  was  not  depressing,  for  it  amounted  to 
less  than  one  hundred  and  fifty  million  taels. 
"  Since  the  total  foreign  commerce  of  China  with  all  the 
world  is  hardly  more,  for  example,  than  that  of  Cuba 
with  all  the  world,  why  should  China  fill  so  large  a  space 
in  all  discussions  of  international  couinierce?  The  an- 
swer is  in  the  potential  trade  that  will  follow  the  de- 
velopment of  the  latent  resources.  It  is  this  which 
interests  the  United  States  as  legitimately  as  the  benevo- 
lent and  unselfish  attitude  which  it  has  always  main- 
tained toward  China  and  the  sentimental  considerations 
which  have  been  the  governing  charjicteristic  of  its  for- 
eign policy  in  everything  that  relates  to  (^hina  and  the 
Chinese  people. 

It  is,  then,  the  future  trade  of  China  that  all  the  great 
nations  have  in  mind  when  they  treat  of  the  Chinese 
problem.  It  is  a  simple  matter  to  say  that  an  increase 
of  a  yard  of  cotton  for  each  person  in  China  would  add 
visibly  to  the  value  of  cotton  fabrics  all  over  the  world. 
An  increase  of  one  dollar  per  person  would  mean,  in 
the  ordinary  way  of  reckoningj  an  enhancement  of 
half  a  billion  dollars  in  the  foreign  commerce  of  China, 
for,  if  the  imports  were  increased  ^350,000,000,  there 
would  be  at  least  an  increase  of  $150,000,000  in  the  ex; 
ports,  since  China  would  have  to  add  to  her  exports  in 
order  to  be  able  to  buy. 

China's  economic  future  depends  on  the  exploitation 
of  her  coal-  and  iron-mines  and  the  development  of  trans- 
portation systems  to  utilize  her  raw  resources.  This 
industrial  development  is  the  prospective  basis  of  a 
vast  commerce.  It  rests,  however,  on  the  so-called 
foreign  concessions,  and  it  raises  the  whole  question  of 


not  simply  the  morality,  but  the  utility,  of  those  con- 
cessions. It  also  raises  the  question  of  the  economic 
overlordship  of  other  countries. 

This,  of  course,  means  Japan,  and  Japan  as  she  came 
out  of  the  peace  conference  with  the  secret  treaties  no 
longer  secret  and  with  the  great-war  Powers  of  the 
Western  world  —  that  is,  Great  Britain,  the  United 
States,  and  France,  as  her  sponsor.  It  brings  up  the 
whole  problem  of  the  international  status  of  China  and 
of  the  future  commerce  of  the  Pacific.  It  also  serves 
to  place  in  relief  the  opinion  of  a  celebrated  French 
economist  delivered  shortly  after  the  conclusion  of  the 
Sino- Japanese  War  in  describing  the  awakening  of  Asia. 
He  boldly  declared  that  this  was  in  reality  the  war  of 
Western  science  against  Chinese  routine,  the  war  of 
progress  against  immobility.^  In  essence  this  to-day  is 
the  justification  which  is  urged  by  Japan  in  pressing 
her  claims  for  the  economic  control  of  China.  A  rapid 
review  of  the  diplomatic  developments  is  necessary  in 
order  to  understand  the  status  at  the  end  of  the  Great 
War  and  the  outlook  under  the  peace  settlement. 

John  Hay  as  secretary  of  state  proclaimed  the  open- 
door  policy  in  1899.  This  application  of  American 
policy  in  the  Orient  after  twenty  years  has  faded  into 
a  vague  memory  in  most  minds.  It  is  therefore  timely 
to  recall  the  circumstances  in  which  the  United  States 
acted.  In  September  and  during  the  following  months 
Secretary  Hay  addressed  to  the  governments  of  Great 
Britain,  Germany,  and  Russia  a  communication  concern- 
ing China.  Communications  identical  in  substance  also 
were  addressed  to  the  governments  of  France,  Italy,  and 
Japan. 

1  Pierre  Leroy  Beaulieu,  "La  Renovation  de  Asie":     Paris,  1902. 


284 


AMEKICAN  FOREIGN  TRADE 


■I . 


"  American  commercial  rights  "  was  the  term  used  by 
the  Government  of  the  United  States  in  defining  the 
open-door  policy.  It  was  a  convenient  form  for  notify- 
ing other  governments  that  the  United  States  was  aware 
of  their  designs  to  seize  territory  and  partition  the 
Chinese  Empire  among  themselves,  and  that  Washing- 
ton was  opposed  to  their  purpose  of  extending  their 
spheres  of  influence  by  denying  China  the  sovereignty 
of  her  own  territory.  The  substance  of  the  declaration 
as  embodied  in  the  note  to  Japan  was  that  this  country 
was 

animated  with  a  sincere  desire  to  insure  to  the  commerce  and 
industry  of  the  United  States  and  of  all  other  nations  per- 
fect equality  of  treatment  within  the  limits  of  the  Chinese 
Empire  for  their  trade  and  navigation,  tispecially  within  the 
so-called  spheres  of  influence  or  interest  claimed  by  certain 
European  powers  in  Chiua.^ 

The  next  chapter  in  the  declaration  of  American  policy 
with  reference  to  the  far  East  was  broader  than  the  open- 
door  statement  of  Secretary  Hay.  It  recognized  the 
growing  influence  of  Japan  in  the  far  East  and  also  the 
interest  of  the  United  States  in  the  Pacific.  It  came 
nine  years  after  the  Hay  exchange  of  notes.  It  was  in 
the  form  of  an  exchange  of  notes  between  Elihu  Root, 
secretary  of  state,  and  Baron  Takahira,  the  Japanese 
Ambassador  at  Washington  in  November,  1908.  Its 
substance  was  that  the  wish  of  the  two  governments  was 
to  encourage  the  free  and  peaceful  development  of  their 
commerce  on  the  Pacific  Ocean,  to  maintain  the  status 
quo  in  that  region,  and  to  defend  the  principle  of  equal 
opportunity  for  commerce  and  industry  in  China  and 
to  preserve  the  common  interest  of  all  powers  —  by  sup- 

1  See  Appendix  C.  for  text. 


CHINA  AND  THE  PACIFIC  285 

porting  by  all  pacific  means  at  their  disposal  the  inde- 
pendence and  integrity  of  China  and  the  principle  of 
equal  opportunity  for  all  nations  in  that  empire.  ^ 

Nine  years  passed,  and  a  third  declaration  emanated 
from  the  Department  of  State.  The  circumstances  were 
different  from  those  in  which  previous  declarations  had 
been  made.  Japan  had  entered  the  war  as  an  ally  of 
Great  Britain.  She  had  wrested  Shantung  from  Ger- 
many. The  United  States  had  become  a  belligerent.  It 
was  recognized  that  the  situation  in  the  far  East  was 
in  the  hands  of  Japan.  She  wanted  specific  recognition 
by  the  United  States  of  her  dominant  position  in  Asia. 
She  got  it  in  what  was  known  as  the  Lansing-Ishii  Agree- 
ment, an  exchange  of  notes  between  the  American  Secre- 
tary  of  State  and  the  Japanese  Ambassador  in 
Washington.  This  was  promulgated  in  November,  1917. 
It  unequivocally  recognized  that  territorial  propinquity 
creates  special  relations  between  countries  and  that 
consequently  Japan  has  special  interests  in  China.  ^ 

No  previous  national  administration  in  the  United 
States  had  ventured  to  make  this  specific  statement. 
While  the  agreement  pledged  Japan  to  respect  China's 
territorial  integrity,  by  inference  at  least,  it  likewise 
placed  the  economic  future  of  China  in  Japan's  hands 
and  made  her  the  dictator  of  the  program  of  economic 
readjustment  and  social  evolution  which  China  in  a 
sporadic  way  had  attempted  on  her  own  account 

China,  while  like  a  derelict  at  sea  unable  to  chart  a 
course,  nevertheless  was  not  willing  to  be  ignored  in 
matters  affecting  her  own  sovereignty  and  independence. 
^-  /f  Jf ^  government  gave  publicity  to  a  note  in 
which,  following  the  language  of  the  Lansing-Ishu  agree- 

^See  Appendix  C. 


!ii 


286 


AMERICAN  FOREIGN  TRADE 


CHINA  AND  THE  PACIFIC 


287 


•j'. 


ii  1 


ment,  "in  order  to  avoid  misunderstanding,"  it  made 
known  that  views  of  the  government  were  these: 

The  principle  adopted  by  the  Chinese  government  towards 
the  friendly  nations  has  always  been  one  of  justice  and 
equality;  and  consequently  the  rights  enjoyed  by  the  friendly 
nations  derived  from  the  treaties  have  been  consistently  re- 
spected, and  so  even  with  the  special  relations  between  the 
countries  created  by  the  fact  of  territorial  contiguity,  it  is 
only  in  so  far  as  they  have  been  provided  for  in  her  existing 
treaties.  Hereafter,  the  Chinese  government  will  still  ad- 
here to  the  principle  hitherto  adopted,  and  hereby  it  is  again 
declared  that  the  Chinese  government  will  not  allow  herself 
to  be  bound  by  any  agreement  entered  into  by  other  nations. 

In  the  press  despatches  from  Washington  at  the  time 
it  was  stated  that  the  State  Department,  while  recog- 
nizing that  there  might  be  some  tone  of  regret  that 
China  was  not  made  a  part  of  the  proceedings,  refused 
to  consider  the  note  as  a  protest.  This,  it  was  com- 
placently stated,  was  so  minor  a  consideration  that 
further  explanation  to  China  was  not  projected.  The 
inspired  press  statement  said  also  that  there  was  in- 
dication that  the  State  Department  considered  the 
Chinese  note  such  an  acceptance  of  the  principle  of 
national  rights  and  neighborly  interest  as  the  United 
States  would  like  to  see  recognized  throughout  the 
world. 

China,  from  subsequent  events  at  the  Paris  peace 
conference,  apparently  did  not  take  this  view  of  national 
rights  and  neighborly  interest. 

The  Lansing-Ishii  Agreement  was  interpreted  by  au- 
thoritative Japanese  spokesmen  as  an  invitation  for  the 
United  States  to  become  the  business  partner  of  Japan. 
At  that  time  a  special  Japanese  finance  commission  was 


in  the  United  States.  Baron  Megata,  its  head,  in  a 
newspaper  interview  said  that  China,  with  her  huge 
latent  resources,  offered  a  very  inviting  field  for  de- 
velopment, and  he  hoped  that  when  the  time  seemed 
ripe  plans  might  be  formulated  for  joint  participation 
of  the  financial  and  industrial  interests  of  the  United 
States  and  Japan  in  the  development  of  her  resources. 
This  view  was  also  given  expression  in  other  authorita- 
tive quarters. 

Tentatives  toward  this  financial  rapprochement  were 
made.  Plans  were  put  forward  which  were  purely  of 
private  origin.  Others  seemed  to  have  the  approval  of 
the  Japanese  Government.  The  basis  of  all  of  them 
was  partnership  in  developing  or  exploiting  China.  A 
Chinese  cartoonist  with  a  sense  of  Western  humor  pre- 
sented one  view  of  the  situation.  He  drew  a  picture  of 
a  cow.  The  United  States  was  feeding  the  animal ;  Ja- 
pan was  milking  the  cow. 

In  financial  and  diplomatic  circles,  in  view  of  these 
suggestions  of  partnership,  some  study  was  made  of 
Japan's  resources.  The  question  in  the  background 
was  how  far  Japan  might  be  able  to  carry  forward  the 
development  of  China  with  her  own  capital  and  how 
far  she  might  contribute  to  an  international  partner- 
ship. The  wealth  of  Japan  at  the  beginning  of  hos- 
tilities  was  estimated  at  ?18,500,000,000.i  This  would 
be  about  |363  per  person.  The  war  gains  of  Japan 
may  have  brought  her  total  national  wealth  up  to  f20,- 
000,000,000.     It  is  not  enough  to  place  her  on  an  equality 

1  This   is  characterized  by  a  leading  authority  —  Prof    Stajilev  K 
Hornbeck,  "Contemporary  Politics  in  tie  East/'  New  ?^rk    me^^ 

LaLrate     '      '        ^'  ^"''  ^^^'^  °^^^^*  ^^  "^^^«  ^^^  ^0  per  cent 


IH 


I   I 


288 


AMERICAN  FOREIGN  TRADE 


CHINA  AND  THE  PACIFIC 


IM 


ll 


I'.^l 


,1, 


I  ;  I 


with  the  United  States  in  an  international  financial 
partnership. 

Months  after  the  Lansing-Ishii  Agreement,  President 
Wilson's  administration  reversed  its  position  on  loans 
by  American  bankers  to  China,  but  there  was  no  specific 
indication  that  they  were  expected  to  act  in  concert  with 
Japanese  financiers.  Separate  action,  however,  appar- 
ently was  not  contemplated,  because  at  the  Paris  con- 
ference the  plan  of  President  Taft's  administration  for 
helping  to  finance  China  was  indorsed  by  the  formation 
of  the  so-called  consortium.^  Under  this  proposed  ar- 
rangement Japan  would  participate  in  the  loans  to 
China  just  as  she  was  to  participate  in  the  former  loan. 
She  would  be  no  more  a  partner  of  the  United  States 
than  of  England  and  France. 

X  These  international  loans,  if  made,  unquestionably 
mean  a  marked  increase  in  the  foreign  trade  of  China. 
They  also  raise  some  pointed  questions.  Will  they  fur- 
ther rivet  China's  economic  chains  by  the  securities  they 
exact  in  the  way  of  appropriating  the  revenues,  or  will 
they  start  an  irresistible  movement  for  economic  inde- 
pendence? China  now  is  an  international  debtor,  with 
foreign  control  of  her  maritime  customs  and  salt  tax. 
Revenues  also  are  pledged  as  security  for  the  Boxer  In- 
demnity, which  need  not  be  paid  in  full  until  the  end 
of  1940. 

The  extra-territorial  jurisdiction  of  foreign  powers 
over  the  tariff  is  similar  to  that  which  obtained  in 
Japan  until  that  power  asserted  her  own  sovereignty 
and  secured  the  abrogation  of  the  treaties.  Previous  to 
the  Great  War,  the  foreign  nations  had  shown  a  will- 
ingness to  assist  China  in  obtaining  tariff  independence. 

iSee  Chapter  XX. 


289 


The  Shanghai  International  Commission  in  1902  had 
provided  for  an  effective  five  per  cent,  ad  valorem  sys- 
tem   changed    to    specific    duties.     The   Anglo-Chinese 
Commercial  Treaty  of  later  date,  in  return  for  China's 
abolition  of  the  likin  and  other  internal  transit  duties, 
had  agreed  to  an  increase  of  the  customs  tariff  twelve 
and  a  half  per  cent.     This  treaty  was  not  ratified.     Dur- 
ing the  Great  War  further  efforts  were  made  for  a 
tariff  adjustment,  but  China's  inability  to  reform  the 
likin  taxes  stood  in  the  way.     It  may  stand  in  the  way 
for  years  to  come,  yet  some  day  Chinese  nationality  may 
assert  itself,  and  tariff  autonomy  be  insisted  on.     The 
question  then  will  arise.  What  will  Japan  do?    Already 
she  has  built  up  her  own  industries  under  a  protective 
tariff.     China's  resources  that  have  been  conceded  to 
her  are  contributing  to  these  industries.     Will  Japan 
then  consent  to  a  policy  which  will  result  in  a  Chinese 
home  market?    That  is  one  of  the  grave  questions  of 
the  future. 

TheJCnited  States  is  iaterested  in  stable  and  orderly 
government  in  China.  It  is  interested  in  all  measures 
for  her  to  strengthen  herself  as  a  really  independent 
nation.  It  is  interested  in  her  fiscal  and  economic 
independence  as  a  means  of  national  development 
that  will  promote  trade.  Should  China  follow  the  ex- 
ample of  Japan  and  move  to  free  herself  from  the  de- 
pendence on  other  nations  in  fiscal  policies,  the  United 
States  would  be  bound  to  adopt  the  same  liberal  course 
that  It  showed  toward  Japan.     The  acid  test  would  be 

Zh7T.  r^  P''^^P'  ^^^  ^"^^*  ^^it^^^^  b«t  not  for 
a^l  .?^^'!:  ^^  ^^"^^  ^^^  «^^^^  C^i^a  are  able  to 
agree,  if  nationalistic  sentiment  develops  that  will 
unify  them,  and,  following  the  assertion  of  territorial 


ill 


ii<n 


290 


AMERICAN  FOREIGN  TRADE 


sovereignty,  demands  economic  sovereignty,  the  United 
States  will  be  in  the  position  of  a  large  foreign  investor 
interested  in  the  development  of  the  riches  of  the  coun- 
try. In  the  past  the  United  States  has  been  the  dis- 
interested friend  of  China.  Its  disinterestedness  has 
not  been  fully  effective.  As  an  interested  friend,  its 
influence  should  be  greater. 


1 

1; 

1 

1 1 

■  I   ' 

CHAPTER  XX 

INVESTMENTS  ABROAD 

Trade  that  follows  the  export  of  capital  —  Fundamental  changes  as  a 
consequence  of  the  war  —  Review  of  practice  in  the  past  —  Extra-terri- 
torial character  of  branch  factories  —  State  Department  formula  regard- 
ing loans  and  development  enterprises  —  Popular  prejudice  against 
claims  —  Experiences  in  Spanish-American  countries  —  Lack  of  contin- 
uous national  policy  — The  Chinese  incident  —  President  Wilson's  re- 
versal —  Principle  of  the  international  consortium  —  The  world  as  the 
field  of  American  investments. 

THE  new  era  is  essentially  the  era  of  the  trade  that 
follows  foreign  investments.  The  position  of 
the  United  States  as  a  creditor  nation  is  rein- 
forced by  the  conditions  calling  for  the  export  of  capi- 
tal. Primarily  it  is  a  situation  to  be  met  by  the  bankers. 
The  flotation  and  safeguarding  of  foreign  securities  is 
peculiarly  their  function,  but  these  securities  rest  on 
the  foreign  trade  of  the  United  States. 

Much  of  the  discussion  in  this  volume  has  been  in 
regard  to  the  ordinary  exchange  of  manufactured  ar- 
ticles and  natural  products  without  regard  to  the  busi- 
ness that  is  created  by  investments  in  the  foreign  coun- 
tries, but  in  the  background  there  always  has  been  the 
broader  subject.  Even  had  world  peace  instead  of  world 
war  been  the  condition  in  1914  and  afterward,  the 
foreign  trade  resulting  from  investments  abroad  would 
have  occupied  a  leading  place  in  American  trade 
policy^  The  desirabUity  of  encouraging  investments 
abroad  as  a  means^^f -promoting  domestic  prosperity 


292 


AMERICAN  FOREIGN  TRADE 


:l  ! 


1 1 

I ; 


tkiroughjoreign  trade  was  already  receiving  attention. 

Following  the  Great  War,  the  significant  circum- 
stance  is  that  the  United  States  Government,  by  war 
loans,  has  become  a  creditor  of  certain  governments, 
and  has  invested  in  their  solvency.  It  therefore  should 
be  in  a  sympathetic  frame  of  mind  toward  its  own  na- 
tionals who  may  make  investments  abroad,  either 
through  private  loans  to  foreign  governments,  in  the 
securities  of  foreign  industrial  corporations,  in  develop- 
ment  enterprises  carried  on  by  the  subjects  of  foreign 
governments,  or  in  similar  enterprises  carried  on  by 
themselves.  The  conditions  in  devastated  Europe,  in 
China,  and  in  South  America  will  be  different,  but  the 
principle  will  be  the  same. 

Since  the  subject  of  future  investments  abroad  thus 
becomes  one  of  present  interest,  it  Is  desirable  to  ex- 
amine briefly  what  has  been  their  nature  in  the  past, 
and  what  has  been  the  policy  of  the  United  States  in 
regard  to  them. 

One  of  the  earliest  forms  of  American  investments 
abroad,  particularly  in  Europe,  was  in  branch  factories. 
A  sharp  line  of  distinction  was  drawn  between  the 
different  classes  of  these  factories.  Large  manufac- 
turers and  importers  of  certain  goods,  chiefly  wearing 
apparel,  such  as  hosiery,  silks,  and  laces,  in  some  in- 
stances  bought  the  entire  output  of  foreign  industries  in 
order  to  supply  their  customers.  Usually,  however,  they 
found  it  more  convenient  to  own  the  factories  outright. 
While  the  capital  thus  invested  was  American  capital, 
it  was  not  so  employed  as  to  advantage  American  labor^ 
or  American  producers  through  the  purchase  of  raw 
material. 

Another  class  of  branch  factories  ceased  to  be  branches 


i'S^. 


INVESTMENTS  ABROAD  293 

and  became  nationalized  foreign  industries.  In  many 
cases  of  this  kind  the  patent  laws  of  different  countries 
made  it  necessary;  but  usually  there  was  wider  field,  and 
parent  companies  parted  not  only  with  their  patents,  but 
with  all  interest  except  the  name.  This,  in  particular 
was  true  of  electrical  manufacturing  enterprises  and  of 
sewing-machine  and  similar  companies  that  established 
themselyes  in  Europe.  They  were  foreign  enterprises 
controlled  by  the  nationals  or  subjects  of  foreign  govern- 
ments, sometimes  under  an  American  name. 

A  third  form  was  the  establishment  of  industrial 
plants  that  either  consumed  semi-raw  material  or  re- 
quired to  be  constantly  renewed  by  the  supply  of  parts 
from  the  United  States.  Usually  these  were  undertaken 
in  pursuance  of  the  national  policies  of  other  countries 
to  secure  the  development  of  domestic  industries.  Man- 
ufactures of  agricultural  machinery  are  the  most  notable 
examples  of  this  class.    They  have  been  established  on 

Francf"''^^  ^""^^^  '"^  ^^°^*^^'  ^"^''^'  ^«™any,  and 

»n^"  ff**?'"^^'  °'  extra-territorial  character  become 
subject  to  he  municipal  law  of  the  nations  in  which  they 
are  established.  Yet  a  considerable  volume  of  corre 
spondence  constantly  goes  on  with  the  Department  of 
State  m  which  companies  domiciled  in  foreign  coun- 
tries assume  that  they  are  entitled  to  the  full  rights  of 

tZTV-T'^'''"^'-  '^^^  department,  sometimes  by  a 
friendly  diplomatic  representation,  is  able  to  secure 
mitigation  of  legal  hardships,  but  it  never  assumes  to 
relieve  these  enterprises  from  the  operation  of  the  laws 
of  the  country  in  which  they  are  domiciled 

The  general  policy  of  the  Government  in  Fel«ttt«-4o 
exti.attuUurialfarto«eM^«,  set  forth  in  a  circular  let- 


I'    !  I 


■^W'' 


'  ;■ 


i'    I 


I   I 


294  AMERICAN  FOREIGN  TRADE 

ter  from  the  Department  of  State  in  1910  to  American 
diplomatic  and  consular  officers.  Secretary  Knox  in 
this  circular  drew  a  distinction  between  expatriation  in 
business  enterprises  and  the  citizenship  of  the  person  en- 
gaged m  them.  The  doctrine  was  laid  down  that  extra- 
territorial factories  benefited  foreign  rather  than  Ameri- 
«uUabflE,  and  were  likely  to  compete  in  the  country 
where  they  were  established,  and  perhaps  in  neighbor- 
ing countries,  with  the  output  of  similar  factories  in  the 
United  States. 

Specific  application  of  the  principle  was  made  to 
American  manufacturers  who  moved  all  or  part  of  their 
plants  to  Canada.  This  class,  it  was  held,  were  not  en- 
titled to  the  assistance  of  the  Government  of  the  United 
states.  But  the  department  recognized  that  there  were 
circumstances  which  might  justify  the  extension  of  the 
assistance  of  the  Government  to  extra-territorial  facto- 
ries as  where  an  established  manufacturing  enterprise 
in  the  United  States  that  exported  its  products  to  for- 
eign markets  might  find  it  expedient  to  meet  competitive 
conditions  by  establishing  a  branch  there,  thus  pre- 
serving and  fostering  the  main  export  business. 

While  the  official  assumption  was  that  American  enter-, 
prises  that  transferred  themselves  to  a  foreign  country f 
thereby  lessened  the  opportunities  for  the  employment  of 
American  labor,  nevertheless  there  was  also  recognition 
that  some  of  them  afforded  a  wider  market  for  American 
products  through  the  installation  of  the  industrial 
plants  and  through  the  supply  of  semi-finished  products 
which  followed.  In  the  future,  under  the  changed  world 
conditions,  the  question  of  branch  factories  is  likely  to 
assume  larger  proportions  than  in  the  past,  yet  its  solu- 
tion offers  no  serious  difficulties.    A  tolerant  spirit  and 


INVESTMENTS  ABROAD 


295 


B 


acquiescence  in  the  actual  circumstances,  without  accept- 
ing undue  responsibilities,  will  serve  to  meet  the  situa- 
tion. 

The  greater  question  of  the  future  of  investments 
abroad  in  the  wider  field  that  may  ba^offered  for  the 
output  of  American  industries  relates  principally  to  I 
loans,  and  to  capital  put  into  development  enterprises 
without  losing  their  American  nationality.  The  formula 
of  the  Department  of  State  in  regard  to  foreign  invest-  /  i 
ments  of  this  character  has  not  varied  greatly,  notwith- 
standing the  actual  change  in  practice  following  changes 
in  national  administrations. 

During  President  Taft's  administration  the  formula 
as  expressed  by  Secretary  Knox  was  that  the  department 
would  give  all  proper  support  to  legitimate  and  beneficial 
American  enterprises  in  foreign  countries.  This  cer- 
tainly afforded  no  wide  latitude  for  reckless  investments, 
since  the  department  itself  was  the  judge  of  what  con- 
stituted legitimate  and  beneficial  enterprises  and  of  what 
should  constitute  proper  support.  Under  President  Wil- 
son  the  language  of  the  formula  was  varied,  but  its  es- 
sence was  not  changed.  It  was  expressed  in  Secretary 
Lansing's  letter  to  the  Chicago  bankers  who  made  a  pre- 
liminary loan  of  f  5,000,000  to  China  in  June,  1917 : 

li?^*""*  IT^  *^^  contract  between  yourselves  and  the  re- 
public  ot  Chma  with  reference  to  a  loan  of  $5,000  000  for  a 
period  of  three  years,  and  I  have  to  say  in  reply  to  your 
oral  request  for  a  statement  of  the  policy  of  the  Department 
resp^tmg  such  loans  that  the  Department  of  State  is  always 
gratified  to  see  the  Republic  of  China  receive  financial  assiJt- 

pohcy  of  the  Department,  now  as  in  the  past,  to  give  all 
proper  diplomatic  support  and  protection  to  the  legitimate 
enterprises  abroad  of  American  citizens  ^^"^mate 


Ml 


!i 


290 


AMERICAN  FOREIGN  TRADE 


■I 


•4 


Yet  formulas  alone  are  not  sufficient  to  meet  the  in- 
vestment conditions  of  the  new  era. 

There  are  perils  in  foreign  investments.  One  of  these 
is  the  lack  of  an  understanding  at  home  of  their  nature 
and  of  their  influence  on  American  economic  policies. 
Capitalists  make  investments  abroad  for  the  same  rea- 
son that  they  make  them  at  home,  which  is  for  profit. 
In  seeking  profit  abroad  for  themselves,  they  also  pro- 
mote profit  for  others.  They  take  more  risk  than  in  in- 
vestments at  home,  and  they  look  for  greater  returns. 
This  is  an  unalterable  law  of  business.  It  has  to  be 
borne  in  mind  when  those  who  have  put  money  in  enter- 
prises in  other  countries  are  held  up  as  greedy  exploit- 
ers. Though  it  is  easy  for  political  demagogues  to  de- 
nounce them  and  to  create  a  prejudice  against  them,  itj^ 
is  not  just  to  make  oratorical  declarations  encouraging  [ 
Americans  to  seek  foreign  fields  for  their  surplus  capital 
and  at  the  same  time  to  discredit  them  at  home.  Either 
they  have  grounds  for  assuming  the  support  of  their  Gov- 
ernment, or  they  have  not ;  and  if  they  have  not,  few  will 
care  to  adventure  abroad. 

Americans  who  invest  in  foreign  countries  have  both 
legal  rights  and  moral  rights.  Their  legal  rights  may  be 
circumscribed  within  the  limits  of  municipal  law  as  in- 
terpreted under  the  law  of  nations.  Their  moral  rights 
are  to  a  presumption  that  they  and  their  representatives 
are  reputable  American  citizens.  Capitalists  as  a  rule 
do  not  entrust  their  interests  abroad  to  persons  without 
character.  The  character  of  their  representatives 
abroad  is  even  more  important  than  the  character  of 
their  representatives  at  home,  because  a  larger  respon- 
sibility rests  on  those  who  serve  them  abroad.  This  is 
the  general  rule. 


V 


INVESTMENTS  ABROAD 


297 


Friction  in  the  past,  where  it  has  developed,  most  com- 
monly has  come  from  private  loans  to  foreign  govern- 
ments either  for  national  development  projects  or  for 
refunding  purposes,  and  from  contracts  and  concessions 
for  public  improvements.  Out  of  government  obliga- 
tions in  the  form  of  debts  sometimes  grow  repudiation  | 
out  of  contracts  and  concessions  grow  controversies  with 
governments.  Claims  follow,  and  international  compli- 
cations sometimes  result.  Contrary  to  a  common  im- 
pression, the  United  States  has  had  few  complications 
of  this  kind,  possibly  for  the  reason  that  its  nationals 
have  made  few  foreign  investments  of  any  kind. 

Spanish  America  has  been  the  field  of  scandalous  spec- 
ulative loan  investments  by  individual  men,  and  while 
some  money  has  been  advanced  on  them,  usually  the  bor- 
rowing country  has  obtained  a  very  small  amount  of 
cash.  A  group  of  British  capitalists  once  loaned  to  a 
corrupt  executive  in  Honduras  nominally  $3,000,000, 
and  actually  advanced  |1,500,000  cash.  This  grew  by 
compound  interest  and  other  means  until  it  figured  in 
the  report  of  the  British  association,  known  as  the  For- 
eign Bondholder's  Corporation,  as  $100,000,000,  and  it 
still  figures  at  that  sum  in  some  of  the  international  com- 
pilations of  Latin-American  debts.  This  was  an  extreme 
case,  yet  it  was  typical  of  many  others. 

The  United  States  Government  has  not  looked  with 
favor  on  the  policy  of  the  European  governments  for  the 
f omble  collection  of  public  debts,  but  it  never  has  denied 
them  certain  privileges,  such  as  the  seizure  of  customs 
and,  theoretically,  it  has  not  denied  the  right  of  tempo- 
rary occupation  of  the  territory  of  the  debtor  country. 
Yet  it  also  has  subscribed  to  what  is  known  as  the  Drago 
Doctrine.    This  is  the  twentieth-century  adaptation  of 


I 


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t!i 


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298 


AMERICAN  FOREIGN  TRADE 


the  Calvo  Doctrine  that  no  creditor  country  is  entitled , 
forcibly  to  collect  from  a  debtor  country.  It  was  pro-l^ 
mulgated  in  1902,  when  European  powers  were  threaten- 
ing Venezuela,  by  the  eminent  Argentine  publicist,  Dr. 
Luis  M.  Drago.  As  minister  of  foreign  affairs  of  the  Ar- 
gentine Republic,  he  addressed  a  note  to  the  Government 
of  the  United  States,  setting  forth  the  principle  that  pub- 
lic debts  cannot  authorize  armed  intervention  or  actual 
occupation  of  the  territory  of  American  nations  on  the 
part  of  any  European  power.  Secretary  Hay  replied, 
acquiescing  in  the  general  principle. 

Taken  with  the  attitude  against  European  govern- 
ments forcibly  collecting  debts  in  Spanish  America,  this 
may  be  accepted  as  the  definite  policy  of  the  United 
States.  Loans  made  by  banking  syndicates  in  the  fu- 
ture financing  of  South  America  will  be  with  the  knowl- 
edge that  the  United  States  will  not  enforce  their  col- 
lection with  war-ships.  Nevertheless,  it  will  not  pre- 
clude diplomatic  representation  and  the  exercise  of  good 
offices  where  difficulties  arise.  But  both  the  economic 
and  the  political  prospects  of  the  South-American  coun- 
tries are  now  so  well  understood  that  loans  arc*  not  likely 
to  be  made  to  governments  which  either  through  insta- 
bility or  indifference  to  their  obligations  may  raise  diffi- 
culties in  payment. 

Pecuniary  claims  are  a  more  frequent  source  of  irri- 
tation. South-American  governments,  in  making  con- 
tracts for  public  improvements,  for  railway  concessions, 
and  similar  enterprises,  usually  insert  a  stipulation  that 
the  nationals  of  other  countries  who  are  parties  to  the 
contract  shall  forego  diplomatic  rights  of  reclamation  in 
any  dispute  that  may  arise.  When  controversies  have 
arisen,  both   European   governments   and   the   United 


f^ 


INVESTMENTS  ABROAD 


299 


States  have  ignored  this  stipulation,  and  have  acted  on 
the  presumption  that  it  was  entered  into  under  a  species 
of  duress  and  had  no  binding  effect.  This  is  a  sore  spot 
with  all  the  Ibero-American  countries,  and  at  Pan- 
American  Conferences  unavailing  efforts  have  been  made 
to  secure  an  agreement  under  which  the  United  States 
would  accept  their  principle. 

On  the  surface  a  stipulation  of  this  kind  seems  proper 
enough,  and  it  might  be  said  that  nationals  of  other  coun- 
tries take  their  chances,  and  should  abide  by  the  conse- 
quences of  their  acquiescence ;  but  if  this  position  were 
rigidly  ahered  to,  much  of  the  material  progress  that 
South  America  has  shown  would  not  have  been  secured, 
and  material  progress  there  is  the  basis  of  political 
progress.  Jurists  in  the  more  advanced  Ibero-American 
countries,  while  sensitive  to  the  implied  reflection  on 
all  the  republics,  and  while  insisting  on  the  general  prin- 
ciple, know  why  neither  England  nor  the  United  States 
has  acquiesced  in  its  rigid  observance.  They  know  that 
the  courts  of  some  Spanish-American  republics  are  not 
free,  and  that  in  any  controversy  between  the  govern- 
ment and  foreigners,  the  judicial  tribunals  will  decide  as 
the  executive  wishes.  There  have  been  instances  in 
which  the  executive  was  complaisant  toward  an  adverse 
decision,  and  in  those  cases  the  foreigners  have  obtained 
their  rights. 

The  claimant,  whether  he  be  before  Congress  or  before 
the  executive  departments  in  Washington,  universally 
is  looked  upon  as  a  nuisance.  The  justice  of  his  claim 
does  not  mitigate  this  harsh  judgment.  Sometimes  the 
pathos  of  it  all,  as  centered  in  the  personality  of  the 
claimant,  appeals  to  the  novelist  or  the  dramatist,  but 
when  their  art  is  served,  they  drop  the  subject,  and  the 


\ 


300 


AMERICAN  FOREIGN  TRADE 


I 


literary  charm  of  claims  falls  back  into  the  shadows. 
In  the  case  of  foreign  claims  there  is  less  of  the  pathetic, 
perhaps,  but  the  mere  fact  of  the  claims  being  against 
other  governments  than  their  own  seems  to  add  to  the 
prejudice  entertained  against  the  claimants.  The  as- 
sumption is  that  some  "  bad  "  Americans  are  trying  to 
rob  "  good  "  foreign  governments. 

A  little  reflection  will  show  that  the  Department  of 
State,  before  pressing  any  claim  against  another  nation, 
makes  a  careful  investigation  to  determine  its  justice. 
The  chorus  of  complaints  that  constantly  goes  up,  which 
sometimes  is  voiced  in  Congress  and  sometimes  in  news- 
papers, is  that  Washington  is  unwilling  to  see  justice 
done  to  its  own  citizens.  This  simply  indicates  that  in 
many  instances  the  department  has  not  been  convinced 
that  the  claim  is  a  proper  one  for  it  to  press.  Doubtless 
occasionally  its  judgment  is  wrong,  but  when  a  claim  is 
pressed  by  Washington  the  American  people  will  be  safe 
in  assuming  that  their  Government  is  fully  convinced  of 
its  righteousness. 

The^merican_£gople  never  have  shown  an  unwilling- 
ess  to  rectify  any  injusticeTharM3:hayiieenjion"ea f or- 
ign  government  in^pressing  claims.  An  illustration  of 
the  manner  in  which  the  national  honor  has  been  vindi- 
cated was  in  the  notorious  Weil  and  the  La  Abra  claims 
against  Mexico.  These  had  nothing  to  do  with  foreign 
investments.  They  were  concocted  so  skilfully  as  to 
deceive  both  the  American  and  the  Mexican  govern- 
ments. After  they  had  been  allowed  by  Mexico,  and  the 
awards  partially  paid,  it  was  discovered  that  they  were 
fraudulent.  Without  hesitation,  the  executive  depart- 
ment recommended  that  an  appropriation  be  author- 


INVESTMENTS  ABROAD 


801 


V 


ized  to  repay  Mexico,  and  restitution  was  made  by  Con- 
gress. 

In  the  case  of  investments  in  revolutionary-ridden  or 
war-ridden  Ibero-American  countries,  the  United  States 
never  has  taken  unfair  advantage  of  its  position,  or 
shown  a  disposition  to  encourage  exaggerated  or  fraudu- 
lent claims.  At  the  same  time  it  has  held  strictly  to  the 
principles  of  international  law  governing  the  rights  of 
foreigners  domiciled  and  owning  property  in  foreign 
countries.  A  striking  example  was  found  after  the 
Spanish-American  War.  Many  Americans  who  had 
owned  sugar-plantations  and  other  property  in  Cuba 
which  had  been  damaged  during  the  period  of  insurrec- 
tion against  Spain  came  forward  with  claims.  A  semi- 
judicial  tribunal  was  established  which  adjudicated  these 
claims,  and  decreed  the  amount  to  be  paid  by  the  Repub- 
lic of  Cuba  as  the  sovereign  successor  of  Spain.  The  en- 
tire work  was  concluded  within  a  few  years,  and  the 
awards  were  surprisingly  small,  the  total  being  approxi- 
mately $6,000,000. 

These  instances  might  be  kept  in  mind  by  those  wha 
are  accustomed  to  decry  their  fellow-Americans  that 
have  occasion  to  press  claims  against  other  countries.) 
There  can  be  no  expansion  of  American  investments  iJ 
foreign  countries  without  the  possibility  of  some  com- 
plications in  individual  cases,  but  torethought  by  the 
investing  capitalists  will  reduce  these  possibilities  to  a 
minimum,  and  the  exercise  of  firm,  but  judicious  diplo- 
macy will  enable  the  few  that  do  arise  to  be  settled  with 
a  minimum  of  diplomatic  friction.  i 

The  lack  of  a  continuous  f^olicj  Jn  foreign  affairs  is 
another    of    the    perils    of   investments    abroad.     The 


I 

V 


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W 


302  AMERICAN  FOREIGN  TRADE 

cha^geaJs^national  ,admmistratioBV-mosi  frequently, 
though  not  always,  due  to  shifts  in  political  power,  have 
caused  bewildering  changes  in  foreign  policies.    When 
Vice-President  Arthur  succeeded  Garfield,  the  policy  of 
the  Garfield  administration  with  reference  to  the  Pacific 
coast  of  South  America  and  the  war  between  Chile  and 
Peru  was  abruptly  reversed,  and  much  that  had  been 
done  was  repudiated.     The  United  States,  after  a  third 
of  a  century,  has  not  fully  recovered  from  the  effects  of 
that  course.    When  Grover  Cleveland  first  assumed  of- 
fice as  President,  he  withdrew  various  treaties  affecting 
canal  relations  and  trade  relations  with  Central  America 
and  the  West  Indies.     They  foreshadowed  a  policy  of 
expansion  and  control  with  which  he  was  not  in  sym- 
pathy.   Yet  after  thirty  years  another  President  of  the 
same  political  faith  became  the  instrument  of  enforcing 

those  policies.  ,  n. 

The  action  of  President  Wilson  in  abruptly  annulling 
the  six-power  loan  in  China  in  1913,  and  thus  prevent- 
ing  the  cooperation  of  American  banking  syndicates  with 
European  syndicates  iri  developing  China's  resources, 
was  an  example  qtA^O^ctfitauConU^^oiJajJol^  ^^}^ 
objections  to  the  participation  of  American  bankers  m 
the  Chinese  loan  were  in  substance  that  it  infringed  the 
sovereignty  of  China  and  might  ultimately  require  for- 
cible intervention  in  the  affairs  of  the  country.    He  said : 

The  conditions  of  the  loan  seem  to  touch  very  nearly  the 
Administrative  independence  of  China  itself,  and  this  Ad- 
ministration does  not  feel  that  it  ought  even  by  implication 
to  be  a  party  to  those  conditions.  The  responsibility  on  its 
part  which  would  be  implied  in  requesting  the  bankers  to 
negotiate  the  loan  might  conceivably  go  the  length  m  some 
unhappy  contingency  of  forcible  interference  m  the  finaii. 
cial  and  even  the  political  afPairs  of  that  great  Oriental  State 


INVESTMENTS  ABROAD 


303 


just  now  awakening  to  a  consciousness  of  its  power  and  its 
obligation  to  its  people. 

Five  years  and  the  Great  War  brought  a  change.  In 
July,  1918,  publicity  was  given  to  the  approval  by  the 
national  administration  of  proposed  loans  to  China  by 
American  bankers.  It  wag^  understood  that  the  amount 
would  be  $50,000,000.  The  new  policy  was  declared 
to  be  the  result  of  war  conditions.  President  Taft^s 
administration  had  acted  under  peace  conditions,  with 
the  declared  purpose  of  putting  the  United  States  in  a 
stronger  position  to  defend  China's  integrity.  "  The 
United  States  had  forced  its  way  into  the  Chinese  loan 
market  in  order,  by  means  of  investments,  to  strengthen 
the  position  of  the  Government  for  the  defense  of  the 
open-door  policy  and  China's  integrity."  Thus  wrote 
Professor  Stanley  Hornbeck,  an  authority  on  the  diplo- 
macy of  the  far  East. 

The  official  announcement  as  made  by  the  Department 
of  State  took  pains  to  emphasize  the  war  nature  of  the 
Government's  action,  so  that  China  would  be  better  able 
to  defend  itself  against  enemy  forces  approaching  its 
borders.  The  text  of  the  official  statement  is  of  interest. 
It  follows: 

China  declared  war  against  Germany  very  largely  because 
of  the  action  of  the  United  States.  Therefore  this  Govern- 
ment has  felt  a  special  interest  in  the  desire  of  China  so  to 
equip  herself  as  to  be  of  more  specific  assistance  in  the  war 
against  the  Central  Powers. 

Until  the  present  time  the  engagements  of  the  United 
States  in  preparing  to  exert  effectively  its  strength  in  the 
European  theatre  of  war  has  operated  to  prevent  specific 
constructive  steps  to  help  China  realize  her  desires.  Re- 
cently, however,  this  Government  felt  that,  because  of  the 
approach  to  Chinese  territory  of  the  scenes  of  disorder,  a 


/ 


304  AMERICAN  FOREIGN  TRADE 

special  effort  should  be  made  to  place  proper  means  at  the 
disposal  of  China.  Consequently  a  number  of  American 
bankers,  who  had  been  interested  in  the  past  in  making  loans 
to  China  and  who  had  had  experience  in  the  Orient,  were 
called  to  Washington  and  asked  to  become  interested  in  the 
matter.  The  bankers  responded  very  promptly  and  an  agree- 
ment has  been  reached  between  them  and  the  Department 
of  State  which  has  the  following  salient  features : 

Pirsi^_The  formation  of  a  group  of  American  bankers  to 
make  a  loan  or  loans  and  to  consist  of  representatives  from 
different  parts  of  the  country. 

Second— -An  assurance  on  the  part  of  the  bankers  that  they 
will  cooperate  with  the  Government  and  follow  the  policies 
>utlined  by  the  Department  of  State. 

Third— Submission  of  the  names  of  the  banks  who  will  com- 
pose the  group  for  approval  by  the  Department  of  State. 
'  Fourth— Submission  of  the  terms  and  conditions  of  any 
loan  or  loans  for  approval  by  the  Department  of  State. 

Fifth— Assurances  that,  if  the  terms  and  conditions  of  the . 
loan  are  accepted  by  this  Government  and  by  the  Govern- 
ment to  which  the  loan  is  made,  in  order  to  encourage  and 
facilitate  the  free  intercourse  between  American  citizens  and 
foreign  States  which  is  mutually  advantageous,  the  Govern- 
ment will  be  willing  to  aid  in  every  way  possible  and  to  make 
prompt  and  vigorous  representations  and  to  take  every  pos- 
sible step  to  insure  the  execution  of  equitable  contracts  made 
in  good  faith  by  its  citizens  in  foreign  lands. 

It  is  hoped  that  the  American  group  will  be  associated  with 
bankers  of  Great  Britain,  Japan,  and  France.  Negotiations 
are  now  in  progress  between  the  Government  of  the  United 
States  and  those  Governments  which  it  is  hoped  will  result 
in  their  cooperation  and  in  the  participation  by  the  bankers 
of  those  countries  in  equal  parts  in  any  loan  which  may  be 

made. 

Besides  the  war-like  conditions  which  confront  China  on 
her  northern  and  western  borders,  there  is  a  further  incen- 
tive to  cooperate  with  all  these  Governments  because  the 
war  has  created  a  community  of  interest  between  them  and 
their  citizens  and  those  of  other  Governments,  and  has  broken 


INVESTMENTS  ABROAD 


305 


down  barriers  which  once  have  existed  and  has  made  easier 
the  intercourse  between  them.  It  is  hoped  that  if  the  pro- 
ject succeeds  it  will  serve  as  an  agency  through  which  this 
community  of  interest  and  the  consequent  expansion  of  our 
mutual  interests  abroad  may  be  adequately  and  properly  ex- 
pressed. 

In  the  months  that  followed  this  official  announcement 
apparently  not  much  progress  was  made  in  the  negotia- 
tions, but  the  Department  of  State  was  following  a  defi- 
nite course  which  bore  fruit  at  the  Peace  Conference. 
Following  the  publication  of  the  covenant  of  the  League 
of  Nations  and  the  terms  of  the  Peace  Treaty,  came  the 
announcement  from  Paris  that  the  United  States  had 
sanctioned  an  international  consortium  for  combining 
the  interests  of  American,  British,  French,  and  Japanese 
groups  in  China  and  for  undertaking  joint  financial  ad- 
ministrative and  industrial  loans  to  the  Chinese  Govern- 
ment.    This  was  in  May. 

In  the  Associated  Press  despatch  from  Paris  it  was 
stated  that  the  American  Government  had  taken  the 
initiative  in  the  movement  in  a  note  to  the  three  other 
powers,  setting  forth  the  principles  on  which  it  was  pro- 
posed to  establish  the  consortium.  The  consortium  may 
be  described  as  international  cooperation,  or  as  interna- 
tional participation  in  the  future  of  China.  In  what- 
ever manner  the  details  may  be  worked  out,  it  bears  on 
the  attitude  of  the  United  States  Government  toward  all 
foreign  investments  by  its  nationals.  The  basis  of  all 
loansand  investments  abix>ad-i»-th^4^velopnient  nf -the. 
resources  of  the  rmmtHps  in  ^^^]^inh  th^y  ^^  made  This 
meansjhe  supply  of  materials  which  become  factors  in 


toreign 
Under  the  new  conditions  the  responsibility  of  bank- 


...■I 


% 


I 


K 


306 


AMERICAN  FOREIGN  TRADE 


ers,  capitalists,  and  industrialists  to  the  countries  in 
which  the  investments  are  made  becomes  responsibility 
to  their  own  government,  because  it  assumes  responsibil- 
ity for  them.  The  conclusion  which  may  be  drawn  re- 
garding the  relation  of  the  Government  of  the  United 
States  to  the  investment  of  its  nationals  abroad  is  that 
it  will  be  one  of  guidance  and  of  guardianship,  but  not 
of  beneficiary  or  of  partnership.  More  iinportant  is  the 
indication  of  a  continuous  and  consistent  policy.  As  a 
consequence  of  the  action  at  Paris,  the  trade  that  fol- 
lows investments  abroad  gains  definite  recognition. 
The  whole  world  is  the  field  for  American  investments. 


CHAPTER  XXI 

THE  AMERICAN  BUSINESS  MAN 
-World  commerce  as  the  business  of  the  United  States 

THE  American  business  man  finds  himself  a  world 
business  man.  As  a  consequence  of  the  Great 
War,  his  geographical  knowledge  has  been  vis- 
ibly increased.  International  affairs  have  become  an 
every-day  topic  to  him.  Foreign  trade  in  its  general 
outlines  has  become  almost  as  familiar  to  him  as  domes- 
tic trade.  There  has  been  an  educational  evolution  on 
this  subject. 

He  finds  that  he  is  in  sympathetic  fellowship  with  his 
Government.  The  sensation  is  both  strange  and  satis- 
fying. Whether  he  is  engaged  in  the  business  of  manu- 
facturing, of  farming,  of  merchandizing,  of  financing  or 
of  transportation,  he  feels  himself  in  a  new  relation  In 
the  past  his  attitude  toward  public  affairs  and  especiallv 
toward  the  national  government  has  been  one  of  aloof- 
ness, often  merging  into  positive  antagonism.  He  could 
not  comprehend  bureaucracy.  It  was  maddening  when 
an  urgent  matter  was  laid  before  one  of  the  executive 
departments  in  Washington  to  get  an  ofBcial  answer 

307 


1^' 


II! 


308 


AMERICAN  FOREIGN  TRADE 


couched  in  formal  language,  saying  that  the  subject 
would  receive  due  consideration. 

The  formal-style  of  comtfruflicatioa-^innoys  the  busi- 
ness man  when  it  does  not  awe  him.  He  cannot  under- 
stand why  he  is  addressed  stiffly  as  "  Sir,"  and  why  some 
cabinet  officer,  in  acknowledging  a  letter,  finds  it  neces- 
sary to  assure  him,  the  business  man,  that  he,  the  cabinet 
officer,  has  the  honor  to  be  ''  his  obedient  servant."  He 
prefers  something  like  "  Yours  truly  "  to  place  him  on  a 
more  familiar  footing.  But  these  circumstances  are  not 
of  overwhelming  consequence.  Governmental  business 
can  not  be  carried  on  with  the  same  directn(iss  as  private 
business,  though  the  methods  may  be  simplified. 

The  business  man  customarily  is  a  member  of  some 
organization  which  relates  to  his  own  form  of  industry 
or  trade.     He  may  also  belong  to  a  chamber  of  com- 
merce, which  represents  the  industrial  and  commercial 
activities  of  the  community  as  a  whole.     The  capable 
secretary  of  either  or  of  both  associations  prepares  reso- 
lutions, for  which  he  votes,  usually  without  discussion. 
They  fairly  interpret  the  opinions  of  the  members  or  they 
would  not  be  passed.    Yet  the  mental  attitude  of  the  in- 
dividual man  is  one  of  lack  of  real  interest,  a  feeling  that 
his  voice  is  inarticulate,  because  the  executive,  or  Con- 
gress, pays  no  attention  to  business  men.     Not  infre- 
quently this  feeling  is  justified  because  it  is  disclosed 
that  the  only  recommendations  wanted  are  those  wliich 
approve  a  policy  already  determined  on.     Where  they 
fail  to  do  this,  they  are  ignored. 

Commonplace  moralizing  about  the  indifference  of 
business  men  to  national  affairs,  and  their  failure  to 
make  their  voice  articulate  by  becoming  members  of 
Congress,  sheds  little  light  on  the  causes  of  the  custom- 


V 


THE  AMERICAN  BUSINESS  MAN 


309 


ary  aloofness.  The  real  explanation  is  that  the  business 
man  in  the  United  States  is  the  victim  of  his  own  suc- 
cess. Concentration  in  any  line  of  endeavor  is  the  indis- 
pensable requisite  of  success.  But  concentration  on 
one  form  of  industrial  or  commercial  activity  eliminates 
a  wider  interest  and  a  wider  knowledge.  Hence  it  hap- 
pens that  when  the  successful  business  man  responds  to 
a  popular  demand  or  to  the  exigencies  of  a  local  political 
machine,  and  perhaps  to  some  stirrings  of  ambition 
within  himself  for  a  broader  field  than  his  business  of- 
fers, and  comes  to  Congress,  he  rarely  stays. 

The  business  man  in  either  branch  of  Congress  always 
has  an  attentive  audience  when  he  speaks  on  the  sub- 
ject with  which  he  has  become  familiar  through  actual 
experience.  The  ablest  lawyers  in  the  Senate  one  day 
were  discussing  an  intricate  question  relating  to  the 
mining  laws.  They  confuted  each  other  with  great  abil- 
ity, and  the  Senate  itself,  which  looked  to  them  for  light, 
was  in  a  hopeless  maze.  A  senator  from  a  mining  State, 
whose  bonanza  strike  had  been  responsible  for  his  com- 
ing to  the  Senate,  twisted  uneasily  in  his  chair,  but  did 
not  venture  to  say  a  word.  He  had  not  the  gift  of  speech 
to  begin  with,  and  had  he  possessed  it,  he  would  have 
been  overawed  by  the  company  in  which  he  found  him- 
self. 

When  the  lawyer-senators  were  hard  at  each  other 
disputing  law  and  facts,  and  getting  into  a  bad  temper, 
one  of  them  happened  to  glance  at  his  miner  colleague. 
Almost  unconsciously  he  appealed  to  the  latter  on  some 
question  of  fact  where  a  little  genuine  information  was 
worth  a  vast  quantity  of  legal  opinion.  The  diffident 
mining  senator  answered  the  question,  and  in  doing  so 
got  to  his  feet.    Another  question  was  asked  him,  and 


II 


310 


AMEEICAN  FOREIGN  TRADE 


he  answered  that,  and  then,  without  premeditation  and 
without  consciousness  that  he  was  addressing  the  most 
august  law-making  body  in  the  world,  he  talked  for  half 
an  hour  on  "  miners'  law,"  the  pioneer  conditions  under 
which  it  sprang  into  existence,  the  situations  it  solved, 
and  the  statute  laws  which  had  flowed  from  it. 

The  confused  Senate  soon  i)erceived  a  logical  chain  of 
reasoning  based  on  actual  knowledge.  When  he  was 
done,  both  the  controversial  senators  made  their  ac- 
knowledgments, and  admitted  that  they  had  b(ien  talk- 
ing about  something  concerning  which  they  knew  noth- 
ing. The  Senate  acted  on  the  information  given  by  the 
miner-senator. 

This  illustration  could  be  repeated  in  numerous  other 
instances  where  senators  and  representatives  who  come 
within  the  category  of  business  men  and  not  lawyers 
have  had  the  opportunity  to  enlighten  their  colleagues  on 
subjects  with  which  from  experience  they  were  familiar. 
The  trouble  usually  is  that  there  are  so  few  of  these  mat- 
ters, or  the  business  man  thinks  there  are.  His  view  is 
the  concentric  one.  He  is  looking  at  the  subject  from 
the  particular  angle  in  which  his  business  has  educated 
him. 

Where  there  is  a  business  man  whose  business  is  such 
that  it  permits  him  to  go  into  politics  and  get  elected  to 
Congress  before  he  is  forty  years  of  age  and  to  continue 
there,  he  exercises  a  marked  influence  on  legislation.  As 
a  rule,  lawyers  who  enter  Congress  after  forty  are  no 
more  successful  than  are  business  men  who  become  mem- 
bers after  reaching  that  age.  The  House  of  Representa- 
tives is  the  most  democratic  parliamentary  body  in  the 
world,  and  the  Senate,  despite  tradition,  is  equally  demo- 
cratic.   The  man  who  knows  his  subject,  who  has  any* 


THE  AMERICAN  BUSINESS  MAN         311 


thing  in  him,  cannot  be  held  back  by  artificial  barriers. 

While  it  is  desirable  that  there  should  be  more  busi- 
ness men  in  Congress,  yet  it  must  be  recognized  that  the 
driving  nature  of  American  commerce  and  industry  does 
not  encourage  the  expectation  that  there  will  be  many 
who  can  mix  in  public  affairs  and  become  congressmen 
before  they  are  forty.  Consequently,  the  country  will 
continue  to  look  to  the  lawyer-politicians  for  legislation, 
and  the  most  that  can  be  expected  is  that  business  men 
will  exercise  their  influence  more  directly  and  with  bet- 
ter organization  than  has  been  customary. 

Law-making  —  that  is,  constructive  law-making  —  is 
complicated  work,  and  requires  a  knowledge  of  many 
subjects  and  their  relation  one  to  another.  It  calls  for 
a  long  apprenticeship.  The  pages  of  the  Congressional 
Directory  are  speaking  testimony  to  the  nature  of  this 
apprenticeship.  The  biographies  of  the  individual  mem- 
bers are  records  of  service  as  state's  attorneys  or  prose- 
cuting attorneys,  as  county  judges  and  circuit  judges, 
and  as  representatives  and  senators  in  the  legislatures 
of  the  States.  This  is  the  natural  progression  toward 
a  seat  in  Congress,  and  it  is  another  explanation  of  why 
the  lawyer-politicians  always  will  be  in  the  numerical 
preponderance.  They  get  to  Congress  after  constant 
service  in  other  positions  in  which  knowledge  of  the  law 
and  its  application  are  constantly  put  into  practice. 

On  one  subject  the  business  man  in  Congress,  if  he 
chooses  to  assert  himself,  is  on  a  full  equality  with  the 
lawyer-politicians  who  are  his  colleagues.  This  is  for- 
eign affairs.  Students  of  the  congressional  system  and 
executive  officials  in  Washington  who  have  to  bear 
largely  the  responsibility  of  conducting  the  relations  of 
the  United  States  with  other  governments  have  com- 


r 


312 


AMEKICAN  FOREIGN  TRADE 


mented  discouragingly  on  the  ignorance  and  indifference 
of  members  of  Congress  to  the  relations  of  the  United 
States  with  foreign  countries. 

It  is  not  due  to  lack  of  patriotism,  for  ordinarily  all 
that  the  congressmen  want  to  know  is  what  the  Govern- 
ment considers  the  patriotic  thing  to  be  done,  and  when 
that  is  known,  they  will  do  their  part.  But  it  is  diffi- 
cult to  persuade  them  to  study  and  learn  something  about 
the  circumstances  which  govern  the  policies  of  other 
countries.  There  is  a  simple,  if  not  a  satisfying,  reason 
for  this  ignorance.  It  is  the  lack  of  interest  on  the  part 
of  their  home  people  in  anything  outside  of  the  immedi- 
ate environment.  The  post-office  and  other  patronage, 
the  appropriation  for  a  public  building,  the  amount  of 
the  district's  share  in  the  River  and  Harbor  Bill,  are  of 
much  more  consequence.  For  that  reason  the  represen- 
tative gives  his  time  to  them. 

It  is  doubtful  whether  at  any  time  the  House  of  Rep- 
resentatives, out  of  more  than  four  hundred  members, 
has  a  score  who  are  interested  in  foreign  affairs,  and 
who  take  the  pains  to  inform  themselves  so  as  to  act 
intelligently  on  international  questions.  The  Senate, 
partly  because  of  its  share  in  the  treaty-making  power, 
has  a  larger  proportion  than  the  House,  but  it  is  nothing 
to  boast  of.  There  are  few  senators  who  would  seek  a 
place  on  the  Foreign  Relations  Committee  in  preference 
to  a  place  on  the  Committee  on  Commerce  which  con- 
trols the  river  and  harbor  allotment,  on  Appropriations, 
or  even  on  Public  Buildings. 

The  Spanish-American  War  enlarged  the  horizon  of 
foreign  relations,  but  the  effect  was  not  noticeably  broad- 
ening in  the  education  of  Congress  as  a  body.  The  Great 
War  has  done  more,  because  it  is  so  far  vaster  in  its 


THE  AMERICAN  BUSINESS  MAN         313 

causes  and  in  its  consequences ;  but  even  here  it  is  not 
certain  that  there  will  be  a  marked  increase  in  the  num- 
ber of  senators  and  representatives  who  care  to  inform 
themselves  fully,  so  as  to  understand  world  affairs  in 
their  bearing  on  the  foreign  relations  of  the  United 
States. 

The  business  man  who  is  interested  in  foreign  trade,\ 
by  that  very  fact  should  be  better  fitted  to  form  a  judg-l 
ment  on  international  policies  than  the  congressman! 
whose  greater  interest  is  in  the  local  affairs  of  his  dis-  1 
trict.     Yet  in  the  past  he  has  not  measured  up  to  the  ) 
standard  of  knowledge  which  might  be  expected  of  him  ( 
either  regarding  the  proper  functions  of  his  own  Govern- 
ment in  connection  with  trade  or  the  requirements  of  for- 
eign markets.     The  antagonistic  attitude  of  one  class  of 
business  men  to  their  own  Government  and  their  misun- 
derstanding of  its  functions  in  extending  their  business 
abroad  affords  some  amusing  illustrations. 

It  was  the  manufacturer  of  a  highly  protected  com- 
modity who,  on  receiving  a  report  from  his  European 
agent  that  Sweden  was  about  to  impose  a  tariff  on  his 
product  for  the  purpose  of  encouraging  its  manufac- 
ture, wrote  an  urgent  letter  to  the  Department  of  State, 
demanding  that  immediate  action  be  taken  to  prevent 
Sweden  from  adopting  this  tariff  duty.  It  was  a  manu- 
facturer of  wire  products  who  had  established  a  branch 
factory  in  one  of  the  South  American  countries,  because 
the  domestic  policy  was  to  encourage  the  manufacture 
there  rather  than  importation,  who  wrote  an  indignant 
remonstrance  to  the  department  for  not  protesting  when 
that  country  proposed  to  change  its  policy  and  lower  the 
duty  on  the  article  in  question.  His  branch  factory  was 
fully  established  and  able  to  meet  competition,  but  he 


314 


AMERICAN  FOREIGN  TRADE 


'  i\ 


<h 


could  not  see  why  the  Government  of  the  United  States 
should  be  willing  that  home  manufacturers  should  take 
advantage  of  this  opportunity  for  trade  expansion.  It 
was  an  association  of  manufacturers  which  formally  de- 
manded that  the  Government  of  the  United  States  "  com- 
pel "  one  of  the  provinces  of  C'anada  to  repeal  its  regu- 
lation for  a  license  tax,  notwithstanding  that  the  tax  was 
required  not  only  from  commercial  travelers  from  all 
countries  without  discrimination,  but  from  the  other 
provinces  of  the  dominion  as  well. 

Tiesfi_instanees^^f-4he  lack  ^rf-xoropreh^nsion- of  the 
proper  functions  of  the  Government  in  relation  to  trade 
mtproonrae  onuld  be  muitiplied^Juit  they  are  of  little" 
importance  in  comparison  with  the  discouraging  chap- 
ter of  foreign- trade  forays.  How  recent  is  the  series  of 
indignant  reports  from  American  consuls  and  from  spe- 
cial agents  of  the  Department  of  Commerce  which  poured 
into  Washington  on  the  deficiencies  of  the  American 
manufacturers  who  were  seeking  business  abroad! 
From  the  settled  commercial  centers  of  Europe,  whose 
practices  had  been  fixed  for  generations,  they  came. 
From  the  much  sought-after  South  American  market 
they  flowed  in  endless  tide.  From  China  and  Japan-a»dr^ 
remoter  regions  of  the  world  where  there  were-eppor- 
tunities  to  sell  American  goods  they  drifted  in. 

They  were  all  of  the  same  order.  Innumerable  in- 
stances of  bad  packing,  with  the  inevitable  indignation 
of  consignees  and  imperative  demands  for  damages;  fail- 
ure to  live  up  to  samples,  with  the  consequent  disappoint- 
ment of  the  importers ;  deficient  postage ;  absolute  indif- 
ference to  specifications  made  by  the  importers  with  a 
view  to  meeting  local  requirements;  refusal  to  fulfil 
orders  which  had  been  sought  after,  but  later  disregarded 


\ 


THE  AMERICAN  BUSINESS  MAN         315 

because,  when  the  order  was  received,  the  home  market 
had  quickened  and  the  articles  could  be  sold  at  greater 
profit;  dumping  of  second-rate  commodities,  often  an 
accumulated  surplus,  and  oftener  inferior  stock  which 
had  to  be  got  rid  of,  and  which  it  was  considered  fair 
gain  to  unload  on  the  hapless  foreigner;  failure  to 
accept  repeat  orders  when  an  importer  had  created  a 
market  for  the  American  goods  because  renewed  indus- 
trial activity  had  insured  a  better  profit  at  home;  de- 
mands for  cash  with  order  when  specific  agreement  had 
been  made  for  credit;  indifference  to  drafts  previously 
authorized,  and  frequently  insulting  reflections  on  the 
financial  ability  and  integrity  of  the  consignee!  This 
was  the  chapter. 

There  were  several  causes  for  this  series  of  consular 
letters  and  reports.  In  the  first  place,  the  American 
manufacturer  who  was  guilty  of  these  practices  still 
looked  on  foreign  orders  as  something  sporadic  and  spas- 
modic, and  only  to  be  sought  in  order  to  dispose  of  sur- 
plus stock.  In  other  words,  the  foreign  field  was  viewed 
purely  as  a  dumping-ground  for  temporary  purposes. 

Ignorance  of  packing  methods  was  simply  inexcusable. 
Indifference  to  the  trade  requirements  of  other  mar- 
kets was  partly  due  to  American  self-sufl&ciency.  It  as- 
sumed that  what  was  suitable  to  the  domestic  consumer 
should  suit  the  foreign  consumer.  There  was  also  mani- 
fest something  of  the  inherent  contempt  of  the  provincial 
American  for  all  things  foreign.  Unfortunately,  there 
was  not  always  the  highest  standard  of  commercial  in- 
tegrity. Sharp  practices,  which  were  condoned  at  home, 
it  was  assumed  would  be  condoned  abroad. 

These  criticisms  happily  related  only  to  certain  per- 
sons and  to  small  concerns.     They  never  were  true  of 


« 


1'^ 


P;  '1:^ 


t  \'' 


316 


AMEKICAN  FOREIGN  TRADE 


the  half  score  of  great  corporations  which  went  into  the 
foreign  field  with  the  purpose  of  cultivating  it  as  a  per- 
manent market,  and  which  still  do  the  bulk  of  the  export 
business  of  the  United  States.  These  big  companies 
did  not  pack  their  goods  carelessly ;  they  did  not  abruptly 
and  without  explanation  fail  to  fill  orders  which  they 
had  sought ;  they  did  not  merely  dump  their  surplus,  or 
unload  on  the  foreigner  second-hand  and  unsalable 
goods.  They  sought  to  meet  the  local-trade  require- 
ments. They  studied  credit  conditions  in  advance,  and 
once  having  secured  customers,  they  kept  them.  When 
the  active  period  at  home  succeeded  the  dull  times,  and 
the  domestic  demand  exceeded  the  capacity,  neverthe- 
less they  continued  to  fill  their  foreign  orders. 

It  is  the  big  manufacturing  companies  which  have  re- 
deemed the  American  name  abroad.  A  single  firm  or 
person,  by  sharp  practice  or  dishonorable  methods,  and 
by  failure  to  keep  engagements  made,  provokes  an  outcry 
that  causes  the  reliable  firms  to  be  overlooked  temporar- 
ily. It  is  simply  the  case  of  evil  receiving  publicity  where 
good  is  accepted  as  a  matter  of  course.  But  though  the 
example  of  the  big  companies  seems  to  be  ignored,  this 
is  not  really  so.  Their  correct  methods  and  their  close 
attention  to  keeping  scrupulously  their  foreign  trade 
engagements  have  laid  the  deep  and  solid  foundation  on 
which  the  whole  structure  of  American  trade  abroad  may 
be  built. 

The  individual  sinner  through  persistent  reiteration 
of  his  sins  and  of  the  need  of  reforming  his  methods  may 
be  brought  to  repentance.  The  educational  campaign 
against  bad  packing,  dumping  inferior  goods,  failure  to 
live  up  to  agreements,  cancellation  of  orders  accepted, 
and  the  long  train  of  transgressions  which  justly  were 


THE  AMERICAN  BUSINESS  MAN         317 


laid  to  the  door  of  many  American  manufacturers  is 
bearing  fruit.  A  higher  sense  of  responsibility  in  deal- 
ing with  foreign  customers  is  now  shown.  Where  there 
are  shirkers  and  slackers,  the  only  remedy  is  to  crowd 
them  out  of  foreign  trade  entirely. 

For  the  business  man  who  for  the  first  time  is  seeking 
to  sell  his  goods  abroad  his  aloofness  in  domestic  matters 
becomes  one  of  apprehension  in  foreign  affairs.  He  is 
literally  bewildered,  and  venturing  into  untried  fields  he 
shows  his  bewilderment.  He  feels  that  he  does  know 
something  about  home  concerns,  but  when  he  is  adrift  in 
the  big  world  he  is  helpless. 

This  sense  of  isolation  is  to-day  the  greatest  drawback 
to  the  American  business  man  who  is  seeking  to  obtain 
a  share  of  foreign  trade.  He  lacks  the  psychological 
sense  to  place  himself  in  the  midst  of  other  and  distant 
surroundings.  The  failure  to  comprehend  foreign  cus- 
toms and  requirements  is  due  to  this  lack  of  insight. 
The  business  man  does  not  realize  that  there  is  another 
world  of  trade  in  which  the  point  of  view  is  entirely 
different  from  his  own.  The  Government,  by  its  numer- 
ous agencies,  has  tried  and  is  trying  to  give  the  American 
business  man  this  sense  of  the  foreign  point  of  view.  It 
seeks  to  take  him  out  of  his  own  environment  and  set  him 
down  in  an  entirely  different  one  thousand  of  miles 
away,  to  coordinate  its  resources  with  his  enterprise. 

The  war  taught  some  valuable  lessons  regarding  the 
coordination^  of  the  business  man^s  energies  with  those 
of  the  Governments  They  furnish  a  useful  avenue  of 
approach  to  the  coordination  of  government  agencies 
in  promoting  foreign  trade.  Few  business  men  realize 
the  degree  to  which  the  Department  of  State  as  the  me- 
dium of  foreign  intercourse  has  been  molded  to  advance 


318 


AMERICAN  FOREIGN  TRADE 


■v.n 


their  interests.  They  have  some  knowledge  of  the  ac- 
tivities of  the  Department  of  Commerce,  because  the 
name  appeals  to  them.  It  is  barely  a  decade  since  an 
appropriation  of  $50,000  was  secured  by  President 
Roosevelt's  administration  for  developing  foreign  trade 
through  that  instrumentality.  The  pioneer  work  un- 
der that  modest  appropriation  caused  a  broad  foundation 
to  be  laid,  and  a  solid  one,  too,  so  that  now  more  than 
$1,000,000  is  annually  devoted  to  this  purpose,  and  every 
part  of  the  world  is  scoured  by  experts  able  to  give  tech- 
nical as  well  as  general  information.  The  Federal 
Trade  Commission  has  added  foreign  markets  to  its  func- 
tions, and  the  Tariff  Commission  likewise  takes  excur- 
sions into  this  inviting  field. 

There  is  much  overlapping  and  duplication  in  this 
work,  but  its  value,  while  somewhat  obscured  by  this 
overlapping,  is  undeniable.  What  is  needed  is  a  clear- 
ing-house to  digest  all  the  information  gathered  and 
make  it  accessible  to  the  ordinary  man.  This  suggestion 
might  be  looked  upon  as  an  incitement  to  create  another 
board,  with  all  the  appurtenant  machinery,  but  that  is 
not  the  purpose.  The  clearing-house  should  be  com-  - 
posed  of  existing  bureau  official&>  Yet,  despite  the  du- 
plication, and  notwithstanding  the  absence  of  proper  di- 
gestive facilities,  the  value  of  the  work  done  by  the  Gov- 
ernment should  be  appreciated,  and  business  men  should 
take  advantage  of  it  and  coordinate  their  energies  with 
its  activities. 

There  is  the  further  opportunity  for  co5peration  by 
manufacturers  and  exporters  among  themselves.  No 
one  should  minimize  the  signal  service  which  the  great 
exporting  corporations  have  done  for  American  com- 
merce in  their  perfectly  legitimate  efforts  to  extend  their 


THE  AMERICAN  BUSINESS  MAN         319 


own  business.  It  is  they  who  have  in  reality  created 
markets  for  American  goods.  They  are  deeply  inter- 
ested in  all  questions  of  general  policy  relating  to  for- 
eign trade,  and  they  are  not  so  strong  that  the  govern- 
ment agencies  can  be  neglected  by  them.  But  from  the 
large  capital  at  their  command,  and  from  the  nature  of 
corporations,  they  are  fairly  able  to  take  care  of  them- 
selves. In  any  growth  of  trade  in  the  future  they  will 
have  their  due  proportion,  but  it  is  the  small  manu- 
facturers who,  taken  as  a  body,  must  be  the  principal 
instrumentalities  of  enlarged  markets. 

Twenty  thousand  small  manufacturers  selling  their 
goods  abroad  add  enormously  to  the  total  sales,  yet  the 
amount  for  each  individual  firm  or  company  may  rela- 
tively be  so  small  that  it  is  impossible  for  it  to  develop 
an  export  business  for  itself,  and  the  individual  members 
are  timid  about  venturing  by  themselves.  The  remedy 
is  in  association,  in  cooperation  with  their  fellows. 
Their  feeling  of  isolation  can  be  overcome  by  associating 
themselves  with  other  lonesome  business  men  who  also 
want  to  do  business  abroad.  A  feeling  of  confidence 
thus  may  be  created,  and  the  foreign  field  may  cease  to  be 
one  to  be  desired,  but  not  to  be  approa-ched  through  fear 
of  rebuffs.  What  the  situation  requires  is  that  the 
smaller  manufacturers  be  provided  with  means  for  ex- 
porting a  certain  portion  of  their  products.  They  have 
the  goods,  and  the  problem  is  to  find  the  market.  This 
can  be  done  by  cooperation. 

Henceforth  world  commerce  is  the  business  of  the  Uni- 
ted States.  This  country  is  in  world  politics.  It  can- 
not, if  it  would,  keep  out  of  world  business.  Yet  there 
are  definite  limitations  on  the  functions  of  the  govern- 
ment.    It  can  gather  and  disseminate  information  of 


!■  I 


iii 


ri 


ii 


320 


AMERICAN  FOREIGN  TRADE 


value  to  American  manufacturers  and  exporters  in  their 
quest  for  world  markets.  It  can  exercise  the  diplomacy 
of  commerce  in  the  light  of  changed  world  conditions 
and  the  delicate  readjustments  to  meet  them.  It  is 
bound  to  have  numerous  tariff  adjustments  and  prob- 
ably to  negotiate  an  intricate  network  of  trade  treaties. 
These  treaties  will  be  the  foundation  of  American  trade 
policy  whenever  the  American  people  clearly  express 
their  views  on  the  trade  that  follows  the  war  and  the 
means  the  United  States  shall  exercise  in  obtaining  a 
proportionate  share  of  it. 

The  promise  of  the  new  era,  which  will  be  an  era  of 
competition,  is  nevertheless  of  closer  relations  between 
the  civilized  nations  of  the  world.  The  education  of  the 
American  public  in  international  relations  as  the  conse- 
quence of  the  Great  War  carries  with  it  the  prospect  of 
a  wide  popular  education  in  regard  to  commerce  with 
other  countries.  The  business  man  has  his  i)art  in  this 
education.  His  first  step  should  be  to  educate  himself 
in  what  constitutes  the  essentials  of  foreign  trade  and 
the  conditions  under  which  it  may  be  fostered.  This 
done,  he  will  be  in  a  position  to  help  the  education  of 
those  who  are  not  directly  interested,  but  who  have  the 
indirect  interest  that  comes  from  the  effect  of  enlarged 
foreign  markets  on  domestic  prosperity. 

Back  of  it  all  must  be  cooperation  of  the  business  men 
among  themselves  and  coordination  with  the  Govern- 
ment. There  must  be  recognition  that  the  American 
business  character  finds  its  strongest  expression  in  indi- 
vidual enterprise  and  in  initiative  of  its  own.  Where 
other  governments  are  tending  toward  a  larger  measure 
of  actual  participation  in  the  enterprises  of  their  nation- 
als, the  United  States  should  remain  as  the  exemplar  of 


THE  AMERICAN  BUSINESS  MAN         321 

individualism  in  international  business.  That  is  real 
democracy.  It  is  the  enduring  foundation  for  expanding 
American  trade  in  the  new  era  of  international  com- 
merce. 


I 


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II 


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APPENDIX 

A  — RECIPROCITY  AND  RETALIATORY  TARIFF 

PROVISIONS 

1  —  MCKINLEY  ACT  OP  OCTOBER  1,   1890 

Sec.  3.  That  with  a  view  to  secure  reciprocal  trade  with 
countries  producing  the  following  articles,  and  for  this  pur- 
pose, on  and  after  the  first  day  of  January  eighteen  hundred 
and  ninety-two,  whenever,  and  so  often  as  the  President  shall 
be  satisfied  that  the  Government  of  any  country  producing 
and  exporting  sugars,  molasses,  coffee,  tea,  and  hides,  raw 
and  uncured,  or  any  of  such  articles,  imposes  duties  or  other 
exactions  upon  the  agricultural  or  other  ])roduets  of  the 
United  States,  which  in  view  of  the  free  introduction  of  such 
sugar,  molasses,  coffee,  tea,  and  hides  into  the  United  States 
he  may  deem  to  be  reciprocally  unequal  and  unreasonable,  he 
shall  have  the  power  and  it  shall  be  his  duty  to  suspend,  by 
proclamation  to  that  effect,  the  provisions  of  this  act  relating 
to  the  free  introduction  of  such  sugar,  molasses,  coffee,  tea, 
and  hides,  the  production  of  such  country  for  such  time  as 
he  shall  deem  just,  and  in  such  case  and  during  such  sus- 
pension duties  shall  be  levied,  collected,  and  paid  upon  sugar, 
molasses,  coffee,  tea,  and  hides,  the  product  of  or  exported 
from  such  designated  country  as  follows,  namely: 

All  sugars  not  above  number  thirteen  Dutch  standard  in 
color  shall  pay  duty  on  their  polariscopic  tests  as  follows, 

namely : 

All  sugars  not  above  number  thirteen  Dutch  standard  m 
color,  all  tank  bottoms,  sirups  of  cane  juice  or  of  beet  juice, 
melada,  concentrated  melada,  concrete  and  (ioncentrated  mo- 
lasses, testing  by  the  polariscope  not  above  seventy-five  de- 
grees, seven-tenths  of  one  cent  per  pound ;  and  for  «very  ad- 

322 


APPENDIX 


323 


dition  degree  or  fraction  of  a  degree  shown  by  the  polar- 
iscopic test,  two  hundredths  of  one  cent  per  pound  additional. 

All  sugars  above  number  thirteen  Dutch  standard  in  color 
shall  be  classified  by  the  Dutch  standard  of  color,  and  pay 
duty  as  follows,  namely:  All  sugar  above  number  thirteen 
and  not  above  number  sixteen  Dutch  standard  of  color,  one 
and  three-eighths  cents  per  pound. 

All  sugars  above  number  sixteen  and  not  above  number 
twenty  Dutch  standard  of  color,  one  and  five-eighths  cents  per 
pound. 

All  sugars  above  number  twenty  Dutch  standard  of  color, 
two  cents  per  pound. 

Molasses  testing  above  fifty-six  degrees,  four  cents  per  gal- 
lon. 

Sugar  drainings  and  sugar  sweepings  shall  be  subject  to 
duty  either  as  molasses  or  sugar,  as  the  case  may  be,  accord- 
ing to  polariscopic  test. 

On  coffee,  three  cents  per  pound. 

On  tea,  ten  cents  per  pound. 

Hides,  raw  or  uncured,  whether  dry,  salted,  or  pickled, 
Angora  goatskin,  raw,  without  the  wool,  unmanufactured, 
asses '  skins,  raw  or  unmanufactured,  and  skins,  except  sheep- 
skins, with  the  wool  on,  one  and  one-half  cents  per  pound. 

2  —  DINGLEY  ACT  OF  JULY  24,   1897 

Sec.  3.  That  for  the  purpose  of  equalizing  the  trade  of  the 
United  States  with  foreign  countries,  and  their  colonies,  pro- 
ducing and  exporting  to  this  country  the  following  articles: 
Argols,  or  crude  tartar,  or  wine  lees,  crude;  brandies,  or 
other  spirits  manufactured  or  distilled  from  grain  or  other 
materials;  champagne  and  all  other  sparkling  wines;  still 
wines  and  vermuth ;  paintings  and  statuary ;  or  any  of  them 
the  President  be,  and  he  is  hereby,  authorized,  as  soon  as  may 
be  after  the  passage  of  this  Act,  and  from  time  to  time  there- 
after, to  enter  into  negotiations  with  the  governments  of  those 
countries  exporting  to  the  United  States  the  above-mentioned 
articles,  or  any  of  them,  with  a  view  to  the  arrangement  of 
commercial  agreements  in  which  reciprocal  and  equivalent 
concessions  may  be  secured  in  favor  of  the  products  and  man- 


324 


AMERICAN  FOREIGN  TRADE 


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ufactures  of  the  United  States;  and  whenever  the  govern- 
ment of  any  country,  or  colony,  producing  and  exporting  to 
the  United  States  the  above-mentioned  articles,  or  any  of 
them,  shall  enter  into  a  commercial  agreement  with  the  United 
States,  or  make  concessions  in  favor  of  the  products,  or  manu- 
factures thereof,  which,  in  the  judgment  of  the  President, 
shall  be  reciprocal  and  equivalent,  he  shall  be,  and  he  is 
hereby,  authorized  and  empowered  to  suspend,  during  the 
time  of  such  agreement  or  concession,  by  proclamation  to  that 
effect,  the  imposition  and  collection  of  the  duties  mention«»d 
in  this  Act,  on  such  article  or  articles  so  exported  to  the 
United  States  from  such  country  or  colony,  and  thereupon 
and  thereafter  the  duties  levied,  collected,  and  paid  upon 
such  article  or  articles  shall  be  as  follows,  namely : 

Argols,  or  crude  tartar,  or  wine  lees,  crude,  five  per  centum 
ad  valorem. 

Brandies,  or  other  spirits  manufactured  or  distilled  from 
grain  or  other  materials,  one  dollar  and  seventy-five  cents 
per  proof  gallon. 

Champagne  and  all  other  sparkling  wines,  in  bottles  con- 
taining not  more  than  one  quart  and  more  than  one  pint, 
six  dollars  per  dozen ;  containing  not  more  than  one  pint  each 
and  more  than  one-half  pint,  three  dollars  per  dozen;  con- 
taining one-half  pint  each  or  less,  one  dollar  and  fifty  cents 
per  dozen;  in  bottles  or  other  vessels  containing  more  than 
one  quart  each,  in  addition  to  six  dollars  per  dozen  bottles  on 
the  quantities  in  excess  of  one  quart,  at  the  rate  of  one  dollar 
and  ninety  cents  per  gallon. 

Still  wines,  and  vermuth,  in  casks,  thirty-five  cents  per 
gallon;  in  bottles  or  jugs,  per  case  of  one  dozen  bottles  or 
jugs  containing  each  not  more  than  one  quart  and  more  than 
one  pint,  or  twenty-four  bottles  or  jugs  containing  each  not 
more  than  one  pint,  one  dollar  and  twenty-five  cents  per  case, 
and  any  excess  beyond  these  quantities  found  in  such  bottles 
or  jugs  shall  be  subject  to  a  duty  of  four  cents  per  pint  or 
fractional  part  thereof  but  no  separate  or  additional  duty 
shall  be  assessed  upon  the  bottles  or  jugs. 

Paintings  in  oil  or  water  colors,  pastels,  pen  and  ink  draw- 
ings, and  statuary,  fifteen  per  centum  ad  valorem. 


APPENDIX 


325 


The  President  shall  have  power,  and  it  shall  be  his  duty, 
whenever  he  shall  be  satisfied  that  any  such  agreement  in 
this  Section  mentioned  is  not  being  fully  executed  by  the 
Government  with  which  it  shall  have  been  made,  to  revoke 
such  suspension  and  notify  such  Government  thereof. 

And  it  is  further  provided  that  with  a  view  to  secure 
reciprocal  trade  with  countries  producing  the  following  ar- 
ticles, whenever  and  so  often  as  the  President  shall  be  satisfied 
that  the  Government  of  any  country,  or  colony  of  such  Gov- 
ernment, producing  and  exporting  directly  or  indirectly  to 
the  United  States  coffee,  tea,  and  tonquin,  tonqua,  or  tonka 
beans,  and  vanilla  beans,  or  any  such  articles,  imposes  duties 
or  other  exactions  upon  the  agricultural,  manufactured,  or 
other  products  of  the  United  States,  which,  in  view  of  the 
introduction  of  such  coffee,  tea,  and  tonquin,  tonqua,  or  tonka 
beans,  and  vanilla  beans,  into  the  United  States,  as  in  this 
Act  hereinbefore  provided  for,  he  may  deem  to  be  recipro- 
cally unequal  and  unreasonable,  he  shall  have  the  power 
and  it  shall  be  his  duty  to  suspend,  by  proclamation  to  that 
effect,  the  provisions  of  this  Act  relating  to  the  free  intro- 
duction of  such  coffee,  tea,  and  tonquin,  tonqua,  or  tonka 
beans,  and  vanilla  beans,  of  the  products  of  such  country  or 
colony  for  such  time  as  he  shall  deem  just ;  and  in  such  case 
and  during  such  suspension  duties  shall  be  levied,  coUected, 
and  paid  upon  coffee,  tea,  and  tonquin,  tonqua,  or  tonka 
beans,  and  vanilla  beans,  the  products  or  exports,  direct  or 
indirect,  from  such  designated  country,  as  follows: 

On  coffee,  three  cents  per  pound. 

On  tea,  ten  cents  per  pound. 

On  tonquin,  tonqua,  or  tonka  beans,  fifty  cents  per  pound ; 
vanilla  beans,  two  dollars  per  pound;  vanilla  beans,  com- 
mercially known  as  cuts,  one  dollar  per  pound. 

Sec.  4.  That  whenever  the  President  of  the  United  States, 
by  and  with  the  advice  and  consent  of  the  Senate,  with  a 
view  to  secure  reciprocal  trade  with  foreign  countries,  shall 
within  the  period  of  two  years  from  and  after  the  passage  of 
this  Act,  enter  into  commercial  treaty  or  treaties  with  any 
other  country  or  countries  concerning  the  admission  into 
any  such  country  or  countries  of  the  goods,  wares,  and  mer- 


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326 


AMERICAN  FOREIGN  TRADE 


chandise  of  the  United  States  and  their  use  and  disposition 
therein,  deemed  to  be  for  the  interests  of  the  United  States, 
and  in  such  treaty  or  treaties,  in  consideration  of  the  ad- 
vantages accruing  to  the  United  States  therefrom  shall  pro- 
vide for  the  reduction  during  a  specified  period,  not  exceeding 
five  years,  of  the  duties  imposed  by  this  Act,  to  the  extent  of 
not  more  than  twenty  per  centum  thereof,  upon  such  goods, 
wares,  or  merchandise  as  may  be  designated  therein  of  the 
country  or  countries  with  which  such  treaty  or  treaties  shall 
be  made  as  in  this  section  provided  for;  or  shall  provide  for 
the  transfer  during  such  period  from  the  dutiable  list  of  this 
Act  to  the  free  list  thereof  of  such  goods,  wares,  and  mer- 
chandise, being  the  natural  products  of  such  foreign  country 
or  countries  and  not  of  the  United  States;  or  shall  provide 
for  the  retention  upon  the  free  list  of  this  Act  during  a 
specified  period,  not  exceeding  five  years,  of  such  goods,  wares, 
and  merchandise  now  included  in  said  free  list  as  may  be 
designated  therein;  and  when  any  such  treaty  shall  have 
been  duly  ratified  by  the  Senate  and  approved  by  Congress, 
and  public  proclamation  made  accordingly,  then  and  there- 
after the  duties  which  shall  be  collected  by  the  United  States 
upon  any  of  the  designated  goods,  wares,  and  merchandise 
from  the  foreign  country  with  which  such  treaty  has  been 
made  shall,  during  the  period  provided  for,  be  the  duties 
specified  and  provided  for  in  such  treaty,  and  none  other. 

3 PROPOSED  KNOX  AMENDMENT  TO  TARIFF  OP  1909 

Be  it  enacted.  That  section  two  of  an  act  entitled  **  An  act 
to  provide  revenue,  equalize  duties,  and  encourage  the  in- 
dustries of  the  United  States,  and  for  other  purposes,*'  be, 
and  is  hereby,  amended  so  as  to  read  as  follows: 

''  Sec.  2.  That  from  and  after  the  passage  of  this  act,  and 
so  long  thereafter  as  the  President  of  the  United  States  shall 
be  satisfied  that  the  government  of  any  foreign  country  im- 
poses any  terms  or  restrictions,  either  in  the  way  of  tariff 
rates  or  provisions,  trade  or  other  regulations  charges,  ex- 
actions, or  in  any  other  manner,  directly  or  indirectly,  upon 
the  importation  into  or  the  sale  in  such  foreign  country  of 
any  agricultural,  manufactured,  or  other  product  of  the 


APPENDIX 


327 


United  States,  which  unduly  discriminate  against  the  United 
States  or  the  products  thereof,  and  that  such  foreign 
country  pays  no  export  bounty  or  imposes  no  export  duty  or 
prohibition  upon  the  exportation  of  any  article  to  the  United 
States  which  unduly  discriminates  against  the  United  States 
or  the  products  thereof,  and  that  such  foreign  country  ac- 
cords to  the  agricultural,  manufactured,  or  other  products  of 
the  United  States  treatment  which  is  reciprocal  and  equiva- 
lent, all  articles  when  imported  into  the  United  States,  or 
any  of  its  possessions  (except  the  Philippine  Islands  and  the 
islands  of  Guam  and  Tutuila),  from  such  foreign  country 
shall  be  admitted  under  the  terms  of  the  minimum  tariff  of 
the  United  States  as  prescribed  by  section  one  of  the  tariff  act 
of  August  fifth,  nineteen  hundred  and  nine.  Any  proclama- 
tion issued  by  the  President  under  the  authority  herein  con- 
ferred and  the  application  of  the  minimum  or  other  tariff 
rates  may,  in  accordance  with  the  facts  as  found  by  the  Presi- 
dent, extend  to  the  whole  of  any  foreign  country,  or  may  be 
confined  to  or  exclude  from  its  effect  any  dependency,  colony, 
or  other  particular  subdivision  having  authority  to  adopt  and 
enforce  tariff  legislation,  or  to  impose  restrictions  or  regula- 
tions, or  to  grant  concessions  upon  the  exportation  or  impor- 
tation of  articles  which  are,  or  may  be,  imported  into  the 
United  States :  Provided,  That  whenever  the  President  of  the 
United  States  shall  be  satisfied  that  the  conditions  with  respect 
to  any  country,  which  led  to  the  application  of  the  minimum 
tariff  hereinafter  authorized,  no  longer  exist,  or  that  the  gov- 
ernment of  any  foreign  state,  by  repressive,  discriminatory,  or 
confiscatory  measures,  either  of  legislation  or  of  administra- 
tion, jeopardizes,  impairs,  or  destroys  the  capital  of  citizens  of 
the  United  States  legitimately  invested  in  such  foreign  state; 
or  whenever  the  President  shall  be  satisfied  that  new  dis- 
criminations are  made  or  that  relative  treatment  not  equiva- 
lently  favorable  is  given  by  or  under  the  authority  of  any 
foreign  state  adversely  affecting  the  importation  into  or  sale 
in  such  foreign  state  of  any  product  of  the  United  States ;  or 
that  the  government  of  such  foreign  state,  whether  by  law  or 
by  administrative  measures,  imposes  exactions,  regulations  or 
limitations  restrictive  of  or  harmful  or  amounting  to  relative 


.j 


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I 


328 


AMERICAN  FOREIGN  TRADE 


treatment  not  equivalently  favorable  to  the  commerce  of  the 
United  Etates  with  such  foreign  state  with  respect  to  the 
imports  into  or  exports  from  such  state ;  or  if  a  foreign  state, 
with  respect  to  its  exports  to  other  foreign  or  neutral  markets, 
seeks  by  law  or  by  administrative  measures,  to  provide  for  the 
payment  of  bounties,  rebates  of  duties  or  allowance  upon  ex- 
ports in  such  a  manner  as  to  affect  adversely  the  commerce  of 
the  United  States  established  with  foreign  or  neutral  markets, 
he  shall  direct  that  such  increased  ad  valorem  rates  of  duty  as 
he  shall  determine  are  equivalent  to  the  injury  inflicted  upon 
American  capital  or  commerce  shall  be  imposed  upon  imports 
of  all  or  such  duty-free  products  of  such  foreign  state  as  he 
may  deem  proper,  provided  that  in  no  case  shall  the  additional 
duty  so  imposed  be  less  than  five  per  centum  nor  more  than 
twenty-five  per  centum  ad  valorem ;  or  he  may  direct  that  the 
like  ad  valorem  rates  of  duty  shall  be  imposed  upon  importa- 
tions of  all  such  duty-free  products  of  such  foreign  state  as  he 
may   deem   proper,    or   upon   both    dutiable   and   duty-free 
importations,   or,  in  what  the   President  shall   be  satisfied 
are     extreme     cases    of    new     discrimination     and    unjust 
treatment     of     the     commercial     or     foreign     interests     of 
citizens  of  the  United  States  on  the  part  of  such  foreig-n 
state,  he  may  direct  that  such  products  of  such  foreign  state 
as  he  may  deem  proper  shall  be  excluded  from  importation  to 
the  United  States ;  that  whenever  the  President  shall  be  satis- 
fied that  any  of  the  above-described  conditions  exists  he  shall 
issue  a  proclamation  to  this  effect,  and  ninety  days  th(;reafter 
all  the   dutiable  imports  into   the  United   States  from  the 
offending  foreign  state,  or  such  of  the  dutiable  products  as  are 
named  in  the  proclamation,  being  the  product  of  such  foreign 
state,  shall  be  subject  to  the  increased  rates  of  duty  specified 
in  the  proclamation ;  or  in  the  case  of  duty-free  imports  from 
such  foreign  state,  all  such  imports  or  such  of  them  as  are 
named  in  the  proclamation,  being  the  product  of  the  offending 
foreign  state,  shall  become  dutiable  at  the  rates  of  duty  speci- 
fied in  the  proclamation :  or,  in  the  case  of  the  prohibition  of 
importation,  such  articles  of  merchandise  as  the  President 
shall  have  selected  and  named  in  his  proclamation,  being  the 
product  of  the  said  offending  foreign  state,  shall  not  be  en- 


APPENDIX 


329 


titled  to  entry  at  any  of  the  ports  of  the  United  States,  and 
the  importation  thereof  shall  be  prohibited.  All  articles  of 
merchandise  imported  contrary  to  this  act  shall  be  forfeited  to 
the  United  States,  and  shall  be  liable  to  be  seized,  prosecuted, 
and  condemned,  in  like  manner  and  under  the  same  regula- 
tions, restrictions,  and  provisions  as  have  been  heretofore  es- 
tablished for  the  recovery,  collection,  distribution,  and  remis- 
sion of  forfeitures  to  the  United  States  by  the  several  revenue 
laws.  Whenever  the  provisions  of  this  act  shall  be  applicable 
to  importations  into  the  United  States  of  the  products  of  any 
foreign  state,  they  shall  be  applicable  thereto  whether  such 
products  are  imported  directly  from  the  country  of  produc- 
tion or  otherwise.  The  President  may  at  any  time  by  procla- 
mation, which  shall  be  effective  upon  a  date  to  be  specified 
therein,  revoke,  modify,  terminate,  or  renew  any  such  direc- 
tion hereinbefore  authorized  as,  in  his  opinion,  the  public  in- 
terest may  require.  To  secure  information  to  assist  the  Presi- 
dent m  the  discharge  of  the  duties  imposed  upon  him  by  this 
section  and  the  officers  of  the  Government  in  the  administra- 
tion  of  the  customs  laws,  the  President  is  hereby  authorized  to 
employ  such  persons  as  may  be  required." 

Nothing  in  this  act  contained  shall  be  so  construed  as  to 
abrogate  or  in  any  manner  impair  or  affect  the  provisions  of 
any  act  of  Congress  to  promote  the  reciprocal  trade  relations 
of  the  United  States  with  another  country. 

4  — REJECTED  PROVISION  OF   THE  UNDERWOOD  BILL  OF   1913 

That  whenever  the  President  shall  ascertain  as  a  fact  that 
any  country,  dependency,  colony,  province,  or  other  political 
subdivision  of  government  imposes  any  restrictions,  either  in 
the  way  of  tariff  rates  or  provisions,  trade  or  other  regnila- 
tions,  charges  or  exactions,  or  in  any  other  manner,  directly 
or  indirectly,  upon  the  importations  into  or  sale  in  such  foreign 
country  of  any  agricultural,  manufactured,  or  other  product 
of  the  United  States  which  unduly  or  unfairly  discriminates 
against  the  United  States  or  the  products  thereof;  or  when- 
ever he  shall  ascertain  as  a  fact  that  any  such  country,  de- 
pendency, colony,  province,  or  other  political  subdivision  of 
government  imposes  any  restriction  or  prohibition  upon  the 


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fl! 


330  AMERICAN  FOREIGN  TRADE 

exportation  of  any  article  to  the  United  States  which  unduly 
or  unfairly  discriminates  against  the  United  States;  or  when- 
ever he  shall  ascertain  as  a  fact  that  any  such  country,  de- 
pendency, colony,  province,  or  other  political  subdivision  of 
government  does  not  accord  to  the  products  of  the  United 
States  reciprocal  and  equal  or  equivalent  treatment,  he  shall 
have  the  power  and  it  shall  he  his  duty  to  suspend  ly  procla- 
mation  the  operation  of  the  provisions  of  this  Act  relative  to 
the  rates  of  duty  to  he  assessed  upon  the  importation  of  the 
following  specified  articles,  or  such  of  them  as  he  may  deem 
just  and  applicable,  and  to  substitute  therefor  the  rates  of 
duty  hereinafter  prescribed  upon  such  articles  when  imported 
directly  or  indirectly  from  such  country,  dependency,  colony, 
province  or  other  political  subdivision  of  government: 

Fish,  fresh,  smoked,  and  dried,  pickled,  or  otherwise  pre- 
pared; coffee;  tea;  lime;  earthen,  stone,  and  china  ware; 
lemons;  coal,  bitumiTWUS  culm  slack  and  shale  and  composi- 
tions used  for  fuel  in  which  coal  and  coal  dust  is  the  com- 
ponent material  of  chief  value  whether  in  briquets  or  other 
form;  cheese;  wines  of  all  kinds;  malt  liquors;  knitted  goods; 
silk  dresses  and  silk  goods;  leather  gloves;  laces  and  cm- 
broideries,  of  whatever  material  composed,  and  articles  made 
wholly  or  in  part  of  the  same;  toys;  jewelry,  precious  and 
semiprecious  and  imitation  precious  stones,  suitable  for  use 
in  the  manufacture  of  jewelry;  sugars,  tank  bottoms,  sirup  of 
cane  juice  and  concentrated  molasses,  testing  by  the  polan- 
scope  not  above  seventy-fiAje  degrees;  molasses;  wool;  vege- 
table oils.  . 

On  the  issuance  of  such  proclamation  and  until  its  revoca- 
tion there  shall  be  levied,  collected,  and  paid  upon  all  articles 
covered  thereby,  when  imported  directly  or  indirectly  from 
the  place  mentioned  therein,  the  following  rates: 

On  fish,  fresh,  smoked,  and  dried,  pickled,  or  otherwise  pre- 
pared, 1  cent  per  pound;  on  coffee,  3  cents  per  pound;  on  tea, 
10  cents  per  pound;  lime,  10  per  centum  ad  valorem;  on  the 
following  articles  one  and  one-fourth  times  the  rate  specified 
in  section  one  of  this  Act,  namely,  on  earthen,  stone,  and 
china  ware;  expressed  oils;  lemons;  cheese;  wines  of  all  kmds; 
malt  liquors;  knitted  goods;  silk  dresses  and  silk  goods; 


APPENDIX 


331 


leather  gloves;  laces  and  embroideries,  of  whatever  material 
composed,  and  articles  made  wholly  or  in  part  of  the  same; 
toys;  jewelry  and  precious,  semiprecious,  and  imitation  pre- 
cious stones,  suitable  for  use  in  the  manufacture  of  jewelry. 
On  the  following,  in  addition  to  the  duties  as  provided  in  sec- 
tion one  of  this  Act,  the  duties  specified  below: 

On  sugars,  tank  bottoms,  sirup  of  cane  juice  and  concen- 
trated molasses,  testing  by  the  polariscope  not  above  seventy- 
five  degrees,  fifteen-hundredths  cent  per  pound,  and  for  every 
additional  degree  by  the  polariscope  test,  one  one-hundredth 
cent  per  pound;  on  molasses,  2  cents  per  gallon. 

On  wool  of  the  sheep,  hair  of  the  Angora  goat,  alpaca  and 
other  like  animals,  and  all  wools  and  hair  on  the  skins  of  such 
animals,  and  all  wool  wastes  by  whatever  description  known, 
15  per  centum  ad  valorem. 

On  coal,  bituminous,  and  shale,  45  cents  per  ton  of  twenty- 
eight  bushels,  eighty  pounds  to  the  bushel;  coal  slack  or  culm, 
such  05  will  pass  through  a  half-inch  screen,  and  briquets  of 
which  coal  and  coal  dust  is  the  component  part  of  chief  value, 
15  cents  per  ton  of  twenty-eight  bushels,  eighty  pounds  to  the 
bushel. 

And  the  President  may  provide  for  drawbacks  for  the  re- 
funding of  the  duty  paid  upon  any  such  coal,  culm,  or  slack 
imported  for  the  purpose  of  being  used  for  fuel  upon  vessels 
propelled  by  steam  and  engaged  in  trade  with  foreign  coun- 
tries or  between  Atlantic  and  Pacific  ports  of  the  United 
States  and  which  vessels  are  registered  under  the  laws  of  the 
United  States. 

That  whenever  the  President  shall  ascertain  as  a  fact  that 
such  restriction  or  prohibition  or  lack  of  accord  of  reciprocal 
and  equivalent  treatment  has  ceased,  he  shall  have  the  power 
and  it  shall  be  his  duty  to  revoke  such  proclamation,  where- 
upon the  articles  covered  thereby,  when  imported  from  the 
place  mentioned  therein,  shall  pay  the  rates  of  duty  otherwise 
provided  by  law.  But  this  provision  shall  not  be  applicable 
beyond  the  period  of  three  years  after  the  date  of  the  passage 
of  this  Act  unless  Congress  shall  otherwise  prescribe. 


'  \ 


I 


II 


332 


AMERICAN  FOREIGN  TRADE 


I 

'nim 

1/  miiiii'' 


I 


B  — HAITIAN  FISCAL  PROTECTORATE  TREATY 

(Proclaimed  May  3,  1916) 

ARTICLE   I 

The  Government  of  the  United  States  will,  by  its  good  offices, 
aid  the  Haitian  Government  in  the  proper  and  efficient  de- 
velopment of  its  agricultural,  mineral  and  commercial  re- 
sources and  in  the  establishment  of  the  finances  of  Haiti  on  a 
firm  and  solid  basis. 

ARTICLE  n 

The  President  of  Haiti  shall  appoint,  upon  nomination  by 
the  President  of  the  United  States,  a  General  Receiver  and 
such  aids  and  employees  as  may  be  necessary,  who  sliall  collect, 
receive  and  apply  all  customs  duties  on  imports  aud  exports 
accruing  at  the  several  custom  houses  and  ports  of  entry  of 
the  Republic  of  Haiti. 

The  President  of  Haiti  shall  appoint,  upon  nomination  by 
the  President  of  the  United  States,  a  Financial  Adviser,  who 
shall  be  an  officer  attached  to  the  Ministry  of  Finance,  to  give 
effect  to  whose  proposals  and  lal)()rs  the  Minister  will  lend 
efficient  aid.  The  Financial  Adviser  shall  devise  an  adequate 
system  of  public  accounting,  aid  in  increasing  the  revenues 
and  adjusting  them  to  the  expenses,  inquire  into  the  validity 
of  the  debts  of  the  Republic,  enlighten  both  Governments  with 
reference  to  all  eventual  debts,  recommend  improved  methods 
of  collecting  and  applying  the  revenues,  and  make  such  other 
recommendations  to  the  Minister  of  Finance  as  inay  be  deemed 
necessary  for  the  welfare  and  prosperity  of  Haiti. 

ARTICLE  in 
The  Government  of  the  Republic  of  Haiti  will  provide  by 
law  or  appropriate  decrees  for  the  payment  of  all  customs 
duties  to  the  General  Receiver,  and  will  extend  to  the  Receiv- 
ership,  and  to  the  Financial  Adviser,  all  needful  aid  and  full 
protection  in  the  execution  of  the  T)Owers  conferred  and  duties 
imposed  herein ;  and  the  United  States  on  its  part  will  extend 
like  aid  and  protection. 


APPENDIX 


333 


ARTICLE  IV 

Upon  the  appointment  of  the  Financial  Adviser,  the  Gov- 
ernment of  the  Republic  of  Haiti,  in  cooperation  with  the 
Financial  Adviser,  shall  collate,  classify,  arrange  and  make 
full  statement  of  all  the  debts  of  the  Republic,  the  amounts, 
character,  maturity  and  condition  thereof,  and  the  interest 
accruing  and  the  sinking  fund  requisite  to  their  final  dis- 
charge. 

ARTICLE  V 

All  sums  collected  and  received  by  the  General  Receiver 
shall  be  applied,  first,  to  the  payment  of  the  salaries  and  allow- 
ances of  the  General  Receiver,  his  assistants  and  employees 
and  expenses  of  the  Receivership,  including  the  salary  and 
expenses  of  the  Financial  Adviser,  which  salaries  will  be  de- 
termined by  previous  agreement ;  second,  to  the  interest  and 
sinking  fund  of  the  public  debt  of  the  Republic  of  Haiti ;  and, 
third,  to  the  maintenance  of  the  constabulary  referred  to  in 
Article  X,  and  then  the  remainder  to  the  Haitian  Government 
for  purposes  of  current  expenses. 

In  making  these  applications  the  General  Receiver  will  pro- 
ceed to  pay  salaries  and  allowances  monthly  and  expenses  as 
they  arise,  and  on  the  first  of  each  calendar  month,  will  set 
aside  in  a  separate  fund  the  quantum  of  the  collection  and 
receipts  of  the  previous  month. 

ARTICLE  VI 

The  expenses  of  the  Receivership,  including  salaries  and 
allowances  of  the  General  Receiver,  his  assistants  and  em- 
ployees, and  the  salary  and  expenses  of  the  Financial  Ad- 
viser, shall  not  exceed  five  per  centum  of  the  collections  and 
receipts  from  customs  duties,  unless  by  agreement  by  the  two 
Governments. 

ARTICLE  vn 

The  General  Receiver  shall  make  monthly  reports  of  all  col- 
lections, receipts  and  disbursements  to  the  appropriate  officer 
of  the  Republic  of  Haiti  and  to  the  Department  of  State  of 
the  United  States,  which  reports  shall  be  open  to  inspection 
and  verification  at  all  times  by  the  appropriate  authorities 
of  each  of  the  said  Governments. 


334 


AMERICAN  FOREIGN  TRADE 


'"- 1  •■ 


ARTICLE  Vin 


The  Republic  of  Haiti  shall  not  increase  its  public  debt 
except  by  previous  agreement  with  the  President  of  the 
United  States,  and  shall  not  contract  any  debt  or  assume  any 
financial  obligation  unless  the  ordinary  revenues  of  the  Re- 
public available  for  that  purpose,  after  defraying  the  ex- 
penses of  the  Government,  shall  be  adequate  to  pay  the  inter- 
est and  provide  a  sinking  fund  for  the  final  discharge  of 
such  debt. 

ARTICLE  IX 

The  Republic  of  Haiti  will  not  without  a  previous  agree- 
ment with  the  President  of  the  United  States,  modify  the 
customs  duties  in  a  manner  to  reduce  the  revenues  there- 
from; and  in  order  that  the  revenues  of  the  Republic  may 
be  adequate  to  meet  the  public  debt  and  the  expenses  of  the 
Government,  to  preserve  tran(iuillity  and  to  ])romote  material 
prosperity,  the  Republic  of  Haiti  will  cooperate  with  the 
Financial  Adviser  in  his  recommendations  for  improvement 
in  the  methods  of  collecting  and  disbursing  the  revenues  and 
for  new  .sources  of  needed  income. 

ARTICLE  X 

The  Haitian  Government  obligates  itself,  for  the  preserva- 
tion of  domestic  peace,  the  security  of  individual  rights  and 
full  observance  of  the  provisions  of  this  treaty,  to  create  with- 
out delay  an  efficient  constabulary,  urban  and  rural,  composed 
of  native  Haitians.  This  constabulary  shall  be  organized  and 
officered  by  Americans,  appointed  by  the  President  of  Haiti, 
upon  nomination  by  the  President  of  the  United  States.  The 
Haitian  Government  shall  clothe  these  officers  with  the  proper 
and  necessary  authority  and  uphold  them  in  the  performance 
of  their  functions.  These  officers  will  be  replaced  by  Haitians 
as  they,  by  examination,  conducted  under  direction  of  a  board 
to  be  selected  by  the  senior  American  officer  of  this  constabu- 
lary and  in  the  presence  of  a  representative  of  the  Haitian 
Government,  are  found  to  be  (lualified  to  assume  such  duties. 
The  constabulary  herein  provided  for,  shall,  under  the  direc- 
tion of  the  Haitian  Government,  have  supervision  and  control 
of  arms  and  ammunition,  military  supplies,  and  traffic  therein, 


\S( 


APPENDIX 


335 


throughout  the  country.  The  high  contracting  parties  agree 
that  the  stipulations  in  this  Article  are  necessary  to  prevent 
factional  strife  and  disturbances. 

ARTICLE  XI 

The  Government  of  Haiti  agrees  not  to  surrender  any  of 
the  territory  of  the  Republic  of  Haiti  by  sale,  lease,  or  other- 
wise, or  jurisdiction  over  such  territory,  to  any  foreign  gov- 
ernment or  power,  nor  to  enter  into  any  treaty  or  contract 
with  any  foreign  power  or  powers  that  will  impair  or  tend  to 
impair  the  independence  of  Haiti. 

ARTICLE  xn 

The  Haitian  Government  agrees  to  execute  with  the  United 
States  a  protocol  for  the  settlement,  by  arbitration  or  other- 
wise, of  all  pending  pecuniary  claims  of  foreign  corporations, 
companies,  citizens  or  subjects  against  Haiti. 

ARTICLE  xin 
The  Republic  of  Haiti,  being  desirous  to  further  the  develop- 
ment of  its  natural  resources,  agrees  to  undertake  and  execute 
such  measures  as  in  the  opinion  of  the  high  contracting  parties 
may  be  necessary  for  the  sanitation  and  public  improvement 
of  the  Republic,  under  the  supervision  and  direction  of  an 
engineer  or  engineers,  to  be  appointed  by  the  President  of 
Haiti  upon  nomination  by  the  President  of  the  United  States, 
and  authorized  for  that  purpose  by  the  Government  of  Haiti. 

ARTICLE  XIV 

The  high  contracting  parties  shall  have  authority  to  take 
such  steps  as  may  be  necessary  to  insure  the  complete  attain- 
ment of  any  of  the  objects  comprehended  in  this  treaty ;  and, 
should  the  necessity  occur,  the  United  States  will  lend  an  effi- 
cient aid  for  the  preservation  of  Haitian  Independence  and 
the  maintenance  of  a  government  adequate  for  the  protection 
of  life,  property  and  individual  liberty. 

ARTICLE  XV 

The  present  treaty  shall  be  approved  and  ratified  by  the 
high  contracting  parties  in  conformity  with  their  respective 


i 


5 


(I 


336 


AMEEICAN  FOREIGN  TRADE 


I 


laws,  and  the  ratifications  thereof  shall  be  exchanged  in  the 
City  of  Washington  as  soon  as  may  be  possible. 

ABTICLE  XVI 

The  present  treaty  shall  remain  in  full  force  and  virtue  for 
the  term  of  ten  years,  to  be  counted  from  the  day  of  exchange 
of  ratifications,  and  further  for  another  term  of  ten  years  if, 
for  specific  reasons  presented  by  either  of  the  high  contracting 
parties,  the  purpose  of  this  treaty  has  not  been  fully  ac- 
complished. 

C  — CHINA  AND  THE  PACIFIC 

1  —  OPEN  DOOR  POLICY 
SECRETARY   HAY  TO  MINISTER  BUCK 

This  Government,  animated  with  a  sincere  desire  to  insure 
to  the  commerce  and  industry  of  the  United  States  and  of  all 
other  nations  perfect  equality  of  treatment  within  the  limits 
of  the  Chinese  Empire  for  their  trade  and  navigation,  espe- 
cially within  the  so-called  *'  spheres  of  infiuence  or  interest  '' 
claimed  by  certain  European  powers  in  China,  has  deemed 
the  present  an  opportune  moment  to  make  ^^presentations  in 
this  direction  to  Germany,  Great  Britain,  and  Russia. 

To  obtain  the  object  it  has  in  view  and  to  remove  possible 
causes  of  international  irritation  and  reestablish  confidence  so 
essential  to  commerce,  it  has  seemed  to  this  Government  highly 
desirable  that  the  various  powers  claiming  ' '  spheres  of  inter- 
est or  influence  *'  in  China  should  give  formal  assurances 

that  — 

First.  They  will  in  no  way  interfere  with  any  treaty  port 
or  any  vested  interest  within  any  so-called  *'  Kphere  of  inter- 
est ''  or  leased  territory  they  may  have  in  China. 

Second.  The  Chinese  treaty  tariff  of  the  time  being  shall 
apply  to  all  merchandise  landed  or  shipped  to  all  such  ports 
as  are  within  said  **  sphere  of  interest  ''  (unless  they  be 
**  free  ports  "),  no  matter  to  what  nationality  it  may  belong, 
and  that  duties  so  leviable  shall  be  collected  by  the  Chinese 
Government. 

Third.  They  will  levy  no  higher  harbor  dues  on  vessels  of 
another  nationality  frequenting  any  port  in  such  "  sphere  '* 


APPENDIX  337 

than  shall  be  levied  on  vessels  of  their  own  nationaUty,  and 
no  higher  railroad  charges  over  Unes  built,  controlled  or 
operated  withm  such  "  sphere  "  on  merchandise  belonging  to 
citizens  or  subjects  of  other  nationalities  transported  through 
such  sphere  ''  than  shall  be  levied  on  similar  merchandise 
belonging  to  their  own  nationals  transported  over  equal  dis- 
tances. ^ 

The  policy  pursued  by  His  Imperial  German  Majesty  in 
declaring  Tsingtao  (Kiaochao)  a  free  port  and  in  aiding  the 
Chinese  Government  in  establishing  there  a  custom-house,  and 
the  ukase  of  His  Imperial  Russian  Majesty  of  August  11  last 
m  erecting  a  free  port  at  Dalny  (Talienwan)  are  thought  to 
be  proof  that  these  powers  are  not  disposed  to  view  unfavor- 
ably the  proposition  to  recognize  that  they  contemplate  noth- 
ing  which  will  interfere  in  any  way  with  the  enjoyment  by 
the  commerce  of  all  nations  of  the  rights  and  privHeges  guar- 
anteed  to  them  by  existing  treaties  with  China. 

Repeated  assurances  from  the  British  Government  of  its 
fixed  policy  to  maintain  throughout  China  freedom  of  trade 
lor  the  whole  world  insure,  it  is  beHeved,  the  ready  assent  of 
that  power  to  our  proposals.  It  is  no  less  confidently  believed 
that  the  commercial  interests  of  Japan  would  be  greatly  served 
by  the  above-mentioned  declaration,  which  harmonizes  with 
the  assurances  conveyed  to  this  Government  at  various  times 
by  His  Imperial  Japanese  Majesty's  diplomatic  representative 
at  this  capital. 

T  ^^"^  ^""t  ^l'^^^^^^^  instructed  to  submit  to  His  Imperial 
Japanese  Majesty's  Government  the  above  considerations,  and 
to  mvite  their  early  attention  to  them,  and  express  the  earnest 
hope  of  your  Government  that  they  will  accept  them  and  aid 
in  securing  their  acceptance  by  the  other  interested  powers 
^  ^'  ^t«-  John  Hay. 

viscount  AOKI  to  MR.   BUCK 

[Translation.] 

rp  T    .-L    «^.7   ,  Department  of  Foreign  Affairs, 

I  o/cio,  the  26th  day,  the  12th  month  of  the  32d  year  of  Meiji. 

T.,    T._  ^,  (December  26,  1899.) 

Mr.  Minister  :    I  have  the  honor  to  acknowledge  the  receipt 


338  AMERICAN  FOREIGN  TRADE 

of  the  note  No.  176  of  the  20th  instant,  in  which,  pursuing 
the  instructions  of  the  United  States  Government,  your  ex- 
cellency was  so  good  as  to  communicate  to  the  Imperial  Gov- 
ernment the  representations  of  the  United  States  as  presented 
in  notes  to  Russia,  Germany,  and  Great  Britain  on  the  subject 
of  commercial  interests  of  the  United  States  in  China. 

I  have  the  happy  duty  of  assuring  your  excellency  that  the 
Imperial  Government  will  have  no  hesitation  to  give  their 
assent  to  so  just  and  fair  a  proposal  of  the  United  States,  pro- 
vided that  all  the  other  powers  concerned  shall  accept  the 


same. 


I  avail  myself,  etc., 


Viscount  Aoki  Siuzo, 
Minister  for  Foreign  Affairs, 


2  —  ROOT-TAKAHIRA  DECL.ABATION 
IMPERIAIj  JAPANESE  EMBASSY 

washington 

November  30,  1908. 

Sir: 

The  exchange  of  views  between  us,  which  has  taken  place 
at  the  several  interviews  which  I  have  recently  had  the  honor 
of  holding  with  you,  has  shown  that  Japan  and  the  United 
States  holding  important  outlying  insular  possessions  in  the 
region  of  the  Pacific  Ocean,  the  Governments  of  the  two  coun- 
tries are  animated  by  a  common  aim,  poUcy,  and  intention 

in  that  region. 

Believing  that  a  frank  avowal  of  that  aim,  policy,  and  in- 
tention would  not  only  tend  to  strengthen  the  relations  of 
friendship  and  good  neighborhood,  which  have  immemorially 
existed  between  Japan  and  the  United  States,  but  would  ma- 
terially contribute  to  the  preservation  of  the  general  peace, 
the  Imperial  Government  have  authorized  me  to  present  to 
you  an  outline  of  their  understanding  of  that  common  aim, 
policy,  and  intention: 

1.  It  is  the  wish  of  the  two  Governments  to  encourage  the 
free  and  peaceful  development  of  their  commerce  on  the 
Pacific  Ocean. 

2.  The  policy  of  both  Governments,  uninfluenced  by  any 


APPENDIX 


1 1 


339 


aggressive  tendencies,  is  directed  to  the  maintenance  of  the 
existing  status  quo  in  the  region  above  mentioned  and  to  the 
defense  of  the  principle  of  equal  opportunity  for  commerce 
and  industry  in  China. 

3.  They  are  accordingly  firmly  resolved  reciprocally  to  re- 
spect the  territorial  possessions  belonging  to  each  other  in  said 
region. 

4.  They  are  also  determined  to  preserve  the  common  inter- 
est of  all  powers  in  China  by  supporting  by  all  pacific  means 
at  their  disposal  the  independence  and  integrity  of  China  and 
the  principle  of  equal  opportunity  for  commerce  and  industry 
of  all  nations  in  that  Empire. 

5.  Should  any  event  occur  threatening  the  status  quo  as 
above  described  or  the  principle  of  equal  opportunity  as  above 
defined,  it  remains  for  the  two  Governments  to  communicate 
with  each  other  m  order  to  arrive  at  an  understanding  as  to 
what  measures  they  may  consider  it  useful  to  take. 

If  the  foregoing  outline  accords  with  the  view  of  the  Gov- 
ernment of  the  United  States,  I  shall  be  gratified  to  receive 
your  confirmation. 

I  take  this  opportunity  to  renew  to  Your  Excellency  the  as- 
surance of  my  highest  consideration. 

TT  ,,  ^*  Takahiba. 

Honorable  Elihu  Root, 

Secretary  of  State. 

3  —  LANSING-ISHII  AGREEMENT 

[The  Secretary  of  State  to  the  Ambassador  Extraordinary 

and  Plenipotentiary  of  Japan,  on  Special  Mission.] 

Department  op  State, 

T,      ,,  Washington,  November  2,  1917. 

iiixcellency : 

I  have  the  honor  to  communicate  herein  my  understanding 
of  the  agreement  reached  by  us  in  our  recent  conversations 
touching  the  questions  of  mutual  interest  to  our  Governments 
relating  to  the  Republic  of  China. 

In  order  to  silence  the  mischievous  reports  that  have  from 
time  to  time  been  circulated,  it  is  believed  by  us  that  a  pub- 
lic announcement  once  more  of  the  desires  and  intentions 


340 


AMERICAN  FOREIGN  TRADE 


m'  A 


m 


A  :! 


shared  by  our  two  Governments  with  regard  to  China  is  ad- 
visable. 

The  Governments  of  the  United  States  and  Japan  recog- 
nize that  territorial  propinquity  creates  special  relations  be- 
tween countries,  and,  consequently,  the  Government  of  the 
United  States  recognizes  that  Japan  has  special  interests  in 
China,  particularly  in  the  part  to  which  her  possessions  are 
contiguous. 

The  territorial  sovereignty  of  China,  neverth(;less,  remains 
unimpaired  and  the  Government  of  the  United  States  has 
every  confidence  in  the  repeated  assurances  of  the  Imperial 
Japanese  Government  that  while  geographical  position  gives 
Japan  such  special  interests  they  have  no  desire  to  discrimi- 
nate against  the  trade  of  other  nations  or  to  disregard  the 
commercial  rights  heretofore  granted  by  China  in  treaties 
with  other  powers. 

The  Governments  of  the  United  States  and  Japan  deny 
that  they  have  any  purpose  to  infringe  in  any  way  the  inde- 
pendence or  territorial  integrity  of  China  and  they  declare 
furthermore,  that  they  always  adhere  to  the  principle  of  the 
so-called  *  *  Open  Door  * '  or  equal  opportunity  for  commerce 
and  industry  in  China. 

Moreover,  they  mutually  declare  that  they  are  opposed  to 
the  acquisition  by  any  Government  of  any  special  rights  or 
privileges  that  would  affect  the  independence  or  territorial 
integrity  of  China  or  that  would  deny  to  the  subjects  or  citi- 
zens of  any  country  the  full  enjoyment  of  equal  opportunity 
in  the  commerce  and  industry  of  China. 

I  shall  be  glad  to  have  Your  Excellency  confirm  this  under- 
standing of  the  agreement  reached  by  us. 

Accept,  Excellency,  the  renewed  assurance  of  my  highest 
consideration. 

Robert  Lansing 


APPENDIX 


341 


His  Excellency 

Viscount  KiKUJiRO  Isnn, 

Ambassador  Extraordinary  and  Plenipo- 
tentiary of  Japan,  on  Special  Mission. 
[The  Ambassador  Extraordinary  and  Plenipotentiary  of  Ja- 
pan, on  Special  Mission,  to  the  Secretary  of  State.] 

The  Special  Mission  of  Japan, 
Washington,  November  2,  1917. 
Sir:  I  have  the  honor  to  acknowledge  the  receipt  of  your 
note  of  to-day,  communicating  to  me  your  understanding  of 
the  agreement  reached  by  us  in  our  recent  conversations 
touching  the  questions  of  mutual  interest  to  our  Govern- 
ments relating  to  the  Republic  of  China. 

I  am  happy  to  be  able  to  confirm  to  you,  under  authoriza- 
tion of  my  Government,  the  understanding  in  question  set 
forth  in  the  following  terms: 

In  order  to  silence  mischievous  reports  that  have  from  time 
to  time  been  circulated,  it  is  believed  by  us  that  a  public  an- 
nouncement once  more  of  the  desires  and  intentions  shared 
by  our  two  Governments  with  regard  to  China  is  advisable. 

The  Governments  of  Japan  and  the  United  States  recog- 
nize that  territorial  propinquity  creates  special  relations  be- 
tween countries,  and,  consequently,  the  Government  of  the 
United  States  recognizes  that  Japan  has  special  interests  in 
China,  particularly  in  the  part  to  which  her  possessions  are 
contiguous. 

The  territorial  sovereignty  of  China,  nevertheless,  remains 
unimpaired  and  the  Government  of  the  United  States  has 
every  confidence  in  the  repeated  assurances  of  the  Imperial 
Japanese  Government  that  while  geographical  position  gives 
Japan  such  special  interests  they  have  no  desire  to  discrimi- 
nate against  the  trade  of  other  nations  or  to  disregard  the 
commercial  rights  heretofore  granted  by  China  in  treaties 
with  other  Powers. 

The  Governments  of  Japan  and  the  United  States  deny 
that  they  have  any  purpose  to  infringe  in  any  way  the  inde- 
pendence or  territorial  integrity  of  China  and  they  declare, 
furthermore,  tiiat^  they  always  adhere  to  the  principle  of  the 


f 


342 


AMERICAN  FOREIGN  TRADE 


> 


r 


I 


so-called  **  Open  Door  "  or  equal  opportunity  for  commerce 
and  industry  in  China. 

Moreover,  they  mutually  declare  that  they  are  opposed  to 
the  acquisition  by  any  government  of  any  special  rights  or 
privileges  that  would  affect  the  independence  or  territorial 
integrity  of  China  or  that  would  deny  to  the  subjects  or  citi- 
zens of  any  country  the  full  enjoyment  of  equal  opportunity 
in  the  commerce  and  industry  of  China. 

I  take  this  opportunity  to  convey  to  you,  Sir,  the  assurances 
of  my  highest  consideration. 

K.   ISHII 

Ambassador  Extraordinary  and  Plenipotentiary 

of  Japan  on  Special  Mission, 
Honorable  Robert  Lansing, 

Secretary  of  State. 


INDEX 


Adams,  John  Q.,  quoted  on  favored 

nations,  121 
Agriculture,  in  relation  to  foreign 

trade,  7-32 
"Agricultural   Year  Book,   1918," 

cited,  22-28 
Alabama,  48 
Algeria,  60,  154 
Alliances,  Economic,  cited,  74 
America.     See  United  States 
"American   Trade   Policy,"    cited, 

79 
Anglo-Chinese  Commercial  Treaty, 

289 
Anglo-French      Treaty       (Cobden 

Treaty),  quoted,  81 
Anglo-Japanese  Treaty,  89  et  seq., 

274 
Aoki,  Viscount,  letter  of,  quoted, 

337,  338 
Argentine    Republic,    9,    10,    100, 

144;  as  an  economic  ideal,  192, 

193,  201 ;  population  of,  204 
Arthur,  Chester  A.,  112,  302 
Asia    Minor:    possibilities    of,    in 

cotton  production,  28 
Asquith,  Premier:  attitude  of,  to- 
ward public  houses,  40;  quoted 

on  free  trade,  93,  94 
Australia,  31,  60,  87,  93,  97,  99, 

100 
Austria-Hungary,  83,  113,  144 

Bagdad  Railway,  The,  72 
Balfour,  Arthur  J.,  attitude  of,  to- 
ward England's  tariff  policy,  94 
Balfour  Commission,  The,  96 
Balkan  States,  154,  171 
Barcelona,  87 
Barker,  J.  Ellis,  "Britain's  Com- 


ing     Industrial      Supremacy/' 
cited,  55 

Bathurst,  Lord,  90 

Beaulieu,  Pierre  Leroy:  "The 
United  States  in  the  Twentieth 
Century,"  by,  quoted,  140,  141; 
283 

Belgium:  German  Army  in,  55; 
144,  212,  226 

Bingham,  Mr.,  122 

Birmingham,  9,  49,  57 

Blaine,  James  G.:  attitude  of,  to- 
ward foreign  trade,  11;  92 ;  com- 
mercial policy  of,  112  et  seq.; 
117;  attitude  of,  toward  South- 
American  trade,  214 

Bohemia,  163 

Bolivia,  144;  products  of,  197; 
201 

Bolshevism,  76 

Bordeaux,  65 

Boycott,  77 

Bradford,  43 

Brazil:  4,  10,  27;  ore-beds  of, 
48;  49,  57,  65,  113,  117,  185 

Brazilian  Preference,  216 

"Britain's  Coming  Industrial  Su- 
premacy," by  J.  Ellis  Barker,  55 

British  Africa:  cotton  production 
in,  27;  101 

British  Columbia,  51 

British  Empire,  trade  policy  of,  88, 
89,  90-109 

British  Italian  Corporation,  104, 
105 

British  Labor  Mission,  45,  46 

British-Paraguayan  Treaty  of 
1884,  quoted,  80 

British  Trading  Company,  103 

British  West  Indies:   cotton  pro- 
343 


I   I 


314 


INDEX 


duction  in,  27;  114;  237  et  seq. 

Bryan,    William    Jennings,    atti- 
tude of,  toward  Santo  Domingo 
question,  245 

Buchanan  Treaty,  114 

Budget  of  1919,  The,  98,  99 

Buenos  Aires,  9,  114,  121 

Bulgaria,  83,  170 

Bureau  of  Foreign  and  Domestic 
Commerce,  statistical  table  of 
the,  12,  13 

Burke,  Edmund,  quoted  on  Eng- 
land's trade,  90 

Butterworth,  Benjamin,  260 


Cacao,  188 

California,  oil  reserves  in,  53 

Calvo  Doctrine,  298 

Canada:  10,  31;  in  relation  to 
tariff  question,  87  et  seq. ;  93, 
97,  99,  100,  112;  relation  of  nat- 
ural resources  of,  to  foreign 
trade,  247  et  seq. 

Canadian  Reciprocity  Agreement, 
115,  116,  123 

Canadian-West  Indian  Trade 
Agreement:  239;  leading  points 
of,  240,  footnote 

Cargo-carriers,  140-152 

Carnegie,  cited  on  Great  Britain's 
ore  supplies,  56,  57 

Caribbean  Commerce,  232  et  seq. 

Cattle:  as  a  source  of  prosperity, 
25;   26,  119;  Brazilian,   188 

Central  America,  113,  114,  242 

**  Central  Europe,"  translation  by 
Christobel  M.  Meredith,  of  Nau- 
mann's  "  Mittel  Europa,"  cited, 
160 

Cereals,  effect  of  war  on  produc- 
tion of,  22  et  seq. 

Cerro  de  Pasco,  195,  229 

Chamberlain,  Joseph  H.:  attitude 
of,  toward  foreign  trade,  91  e* 
seq.;  quoted,  92,  93,  footnote; 
Austin,  budget  of  1919,  98 


Chattanooga,  9 

Chemicals,  132 

Chevalier,  Michel,  quoted  on  pro- 
ductive power,  37 

Chicago,  9 

€hile:  9,  ore-beds  of,  48;  51,  103, 
194,  195,  201 

China:  cotton  production  in,  27; 
in  relation  to  ore,  48;  corre- 
spondence relative  to,  and  the 
Pacific,  336-342;  the  question 
of,  277;  economic  study  of,  278 
et  seq. 

Chuquicamatu  copper,  229 

Civil  War  :  condition  of  foreign 
trade  at  close  of,  14;  trade 
treaties  after.  111  et  seq.;  mer- 
chant marine  at  time  of,  142 

Clay,  Henry:  quoted  on  industrial 
progress,  37;  attitude  of,  toward 
South  American  countries,  214 

Cleveland,  Grover,   112,  302 

Coal:  transportation  of,  19; 
world's,  reserves,  48  et  seq.;  in 
France,  60,  61 

Coats,  R.  H.,  248,  footnote 

Cobden,  Richard,  quoted,  47 

Cobden  Treaty  (Anglo-French)  : 
69;  quoted,  80,  81 

Coffee,  Brazilian,  188 

Coke,  Thomas,  234 

Colombia:  4,  49,  53,  144;  products 
of,  198,  199 

Combinations,  export,  see  Webb- 
Pomerene  Act 

Commerce:  the  diplomacy  of,  62- 
73.     See  Foreign  trade 

Consortium,  Chinese,  288;   305 

Constantinople,  as  an  international 
port,  168  et  seq. 

"  Contemporary  Politics  in  the  Far 
East,"  by  Prof.  Stanley  K. 
Hornbeck,  287 

Continental  Congress,  66,  67 

Conyngton,  Mary,  "  Effect  of  the 
War  upon  the  Employment  of 
Women,"  cited,  44 


INDEX 


345 


Copper,  productive,  areas,  50  et 
seq. 

Corn:  relation  of  to  foreign  trade, 
24,  25;  duty  on,  proposed  by 
Chamberlain,  93,  footnote 

Cornwall,  57 

Costa  Rica,  144 

Cotton:  transportation  of,  10;  as 
a  factor  in  foreign  trade,  26  et 
seq.;  Asia  Minor  as  a  possible 
producer  of,  28,  29 ;  areas  of  the 
world,  27-29;  87,  145,  162;  in 
Brazil,  188 

"Course  of  Political  Economy," 
Chevalier,  quoted,  37 

Cuba,  48,  49,  123,  234  et  seq. 

Cuban  Constitutional  Convention, 
123 

Cuban  Reciprocity  Treaty,  114, 
115,  123 

Cyprus,  28 

Czecho-Slovak  State,  163 

Dairy  produce,  export  prospects  of, 
26 

Dakota,  10 

Deere,  John,  effect  of,  on  trade 
expansion,  13,  14 

De  Forrest,  David  V.,  121 

De  Mille,  James,  "The  Dodge 
Club,"  quoted,  62 

Denmark,  144 

Department  of  Agriculture:  esti- 
mate of,  on  food  wastage,  21; 
cited  on  cattle,  25,  footnote;  32 

Dexter,  Timothy,  233 

Dingley:  tariff,  113;  Act,  114 

"  Diplomacy  of  the  United  States," 
by  Theodore  Lyman,  quoted.  111 

Disraeli,  Benjamin:  definition  by, 
of  trade  diplomacy,  66 

"Dodge  Club,  The,"  by  James  de 
Mille,  quoted,  62,  66 

Drago,  Dr.  Luis  M.,  298 

Dumping  in  South  America,  222 

Dutch  East  Indies:  cotton  produc- 
tion in,  27 


Dyes,  132 


Ecuador:  industrial,  197;  201 

"  Effect  of  the  War  upon  the  Em- 
ployment of  Women  in  Eng- 
land," by  Mary  Conyngton, 
cited,  44 

Efficiency,  machinery  and  national- 
ized, 33-46 

Egypt,  cotton  production  in,  27  et 
seq. 

Elgin,  Lord,  68 

Elgin-Marcy  Treaty,  111,  259 

Emerson,  Ralph  W^aldo,  cited,  37 

England :  industrial  organization 
of,  33-36;  prohibition  in,  39  et 
seq.;  status  of  industrial  woman 
in,  43—46;  tin-plate  industry  in, 
52;  object  sought  by,  in  Me- 
thuen  Treaty,  63  et  seq.;  65,  71, 
82,  86;  trade  policy  of,  88,  89, 
£0  et  seq.  See  also  British  Em- 
pire and  Great  Britain 

Entente  control,  77 

Export  taxes,  British,  100,  101; 
South  American,  184  et  seq. 

Farmer,  American:  as  a  business 
man,  20  et  seq. 

Favored  Nations,  European  con- 
struction, 78  et  seq.;  American 
construction,  120  et  seq. 

Federal  Reserve  Act,  17 

Federal  Trade  Commission,  133  e* 
seq.,  318 

Ferrero,  cited,  36 

Food,  wastage  of,  in  United 
States,  21,  22 

Foreign  Intelligence  Bureau,  106 

Foreign  trade:  defined,  3-18;  ef- 
fect of  Great  War  on,  4  et  seq.; 
relation  of,  to  domestic  prosper- 
ity, 11  et  seq.;  table  showing 
relation  of,  to  internal  trade,  12, 
13;  condition  of,  at  close  of 
Civil  War,  14;  the  farm  in,  19- 
32;  cattle  as  a  factor  in,  24,  25; 


346 


INDEX 


• 


m 


cotton  in  relation  to,  26  et  teq.; 
diplomacy  of,  62-73;  economic 
league  in  relation  to,  74-89; 
boycotts  and,  77;  British,  pol- 
icy, 88-109;  policy  of  the 
United  States,  89;  Australia 
and,  93;  and  Canada,  93;  key  to 
British,  policy,  109;  United 
States  and,  110-139;  German, 
158  et  seq.;  relations  with  Rus- 
sia and  near  East,  168-182; 
South  America  and,  183-199; 
attitude  of  Blaine  toward,  214; 
in  Caribbean,  232-247;  relation 
of  Canada's  natural  resources  to, 
249  et  seq.;  Japan  and,  265- 
276;  tables  showing  shifting  of 
South  American,  221,  222; 
China  and  the  Pacific,  277-290 

Foster,  John  W.,  113 

France:  agricultural  area  of,  30; 
industrial  women  in,  42;  ore  re- 
sources of,  48;  66,  70,  71,  82,  83, 
114;  factors  in  industrial  recon- 
struction of,  153 

Frankfort,  Treaty  of,  79 

Franklin,  Benjamin,  184 

Free  trade,  British  Empire  and, 
90-109,  passim 

Frelinghuysen,  Secretary,  quoted 
on  favored  nations,  122,  123 

Galveston,  10 

Garfield,  President,  302 

"  Geography  of  the  World's  Agri- 
culture," cited,  26 

George,  King,  attitude  of,  toward 
liquor,  40 

Germany:  economic  attitude  of, 
toward  Asia  Minor,  28,  29;  ore 
resources  of,  48;  60;  attitude  of, 
toward  commercial  treaties,  68, 
69;  71;  attitude  of,  toward  tar- 
iff, 82  et  seq.;  113,  119,  144,  160 
et  seq.y  173 

Ghent,  Treaty  of,  122 

Glasgow,  57 


Grant,  Ulysses  S.,  treaty  of,  with 
Mexico,  112 

Great  Britain :  dependence  of  mills 
of,  on  United  States  cotton,  27; 
ore  resources  of,  48;  iron  and 
steel  industries  of,  57  et  seq.; 
71,  144;  control  of  South  Amer- 
ican trade  by,  206;  trade  of, 
with  China,  281  et  seq.  See 
also  British  Empire  and  Eng- 
land 

Greece,  83,  144,  17« 

Haiti,  234,  236 

Haitian        Fiscal        Protectorate 

Treaty:  246;  text  of,  332-336 
Halsey,  Frederick  M.,  207,  footnote 
Hanseatic  Republic,  144 
Harrison,  President,  113 
Hawaiian  Reciprocity  Treaty,  112, 

123 
Hay,  John:   open  door  policy  of, 

283;    letter  of,  on  policy,  336, 

337 
Hitt,  Robert  R.,  260 
Holland,  144,  165 
Honduras,  144 
Hombeck,  Prof.  Stanley  K.,  287, 

footnote;  303 
Hungary,  163 

Hurley,  E.  N.,  148,  footnote 
Hussey,  14 

Imperial  War  Conference,  96 
Imperial    Preference,    see    Britisli 

Empire,  trade  policy  of 
India:   cotton  production  in,  27; 

31,  36,  57,  60,  97,  175 
International  Institute  of  Agricul- 
ture, Rome,  32 
Investments,     British     In     South 

America,  207;   U.  S.  in  South 

America,  229,  230 
Iowa,  7 
Iron:   Lorraine,  60;   tariff  on,  84 

et  seq.;  Canadian,  256;  Brasil- 

ian,  189;  Chilean,  195 


INDEX 


347 


"  Iron     Ore     Resources     of     the 

World,"  cited,  47 
Ishii,  Kikujiro:  agreement  of,  with 

Lansing,     correspondence,     339- 

342 
Italy,  10,  82,  83,  144,  105,  165 
Italians  in  South  America,  204 

Jamaica,  42,  97,  238  et  seq. 

Japan:  cotton  production  in,  27; 
70,  78,  112,  144;  study  of  indus- 
trial, 265-276 

"  Japan :  Trade  during  the  War," 
quoted,  274,  275 

Jefferson,  Thomas,  attitude  of,  on 
reciprocity,  110 

Jugo-Slavia,  170 

Kansas  City,  10 

Kasson,  John  A.,  114 

Knox,  Secretary:  quoted  on  com- 
mercial discrimination,  128, 
129;  178;  quoted,  273;  295 

Krupp,  Dr.  Gustav:  158;  quoted, 
159 

Lansing-Ishii  Agreement :  285, 
286,  288 ;  text  of,  339-342 

Lansing,  Robert,  quoted  on  loans 
to  China,  295 

Laurier,  Sir  Wilfrid,  260 

Law,  Bonar,  and  England's  tariff 
policy,  94 

League  of  Nations,  77  et  seq.,  305 

Lee,  Arthur,  67 

Leeds,  43 

Leeward  Islands,  cotton  produc- 
tion in,  28 

Liberia,  144 

List,  Friedrich:  attitude  of,  to- 
ward Methuen  Treaty,  66; 
quoted,  111 

Liverpool,   10,  57 

Livestock,  production  of,  22  et  seq. 

Lloyd  George,  David:  attitude  of, 
toward  public  houses,  40;  in  re- 


lation to  foreign  trade,  91 ;  100, 

101 
Lorraine,  61,  121 
Luxemburg,  48 
Lyman,  Theodore,  quoted.  111 

Madagascar,  155 

Maine,  48 

Magellan  Straits,  187,  195 

Malay  Straits,  52,  57 

Manganese,  sources  of,  50;  Brazil- 
ian, 189;  Russian,  176 

Marco  Polo,  180 

Marcy,  Secretary,  68,  112 

Maryland,  49 

McKinley,  President,  114 

McKinley  Tariff  Bill:  112,  113; 
text  of  reciprocity  sections, 
322-331 

McCormick,  Cyrus,  14 

Meat,  production  of,  see  Livestock 

Mecklenburg-Schwerin,  144 

Megata,  Baron,  287 

Methuen  Treaty:  63  et  seq.;  mod- 
ernized application  of,  86 

Mexico,  4,  10 

Mill,  John  Stuart,  on  free  trade, 
87 

"Mittel  Europa,"  by  Friedrich 
Kaumann,  cited,  160 

"Monroe  Doctrine  and  The  Can- 
ning Myth,  The,"  by  Charles  H. 
Sherrill,  207 

Moore,  "International  Law  Di- 
gest," 123,  footnote 

Morocco,  154 

Naumann,  Friedrich,  Mid-Euro- 
pean scheme  of,  159  et  seq. 

Newfoundland,  ore-beds  of,  48,  49 

New  South  Wales,  wool  supply,  60 

New  Zealand,  97 

Nile,  cotton  growing  on  the,  27, 
28 

Nitrates,  185;  Chilean,  194,  224 

Nova  Scotia,  256 

Norway,  83,  144 


i  " 


I 


348 


INDEX 


INDEX 


349 


I ' 


I 


Ohio,  coal  of,  49 

Oil,  industrial  uses  of,  52  et  seq. 

Oliphant,  Lawrence,  68 

Oliver,   John,   effect  of,  on   trade 

expansion,  14 
Oporto,  65 

Ore,  world's,  resources,  47  et  seq. 
Osborne,  John  Ball,  123,  footnote 

Palmer ston,  Lord,  quoted  on  com- 
mercial diplomacy,  67,  68 
Panama  Canal,  9,  51 
Panama  Canal  Act,  143 
Paraguay,  144,  193 
Paris,  industrial  women  in,  43 
Paris  Pact  of  1916,  The,  74  et  aeq. 
Patagonia,    agricultural    reclama- 
tion of,  204 
Patent  Acts,  Lloyd  George  in  re- 
lation to,  101 
Patten,  Prof.  Simon  N.,  244,  foot- 
note 
Payne-Aldrich  Act,  117-119,  130 
Peace  Conference,  286 
Peace  Treaty,  305 
Perry,  Commodore,  267 
Persia    71 

Peru,  9,  25,  51,  195,  201,  202 
"Petroleum      Resources      of      the 
United  States,"  by  M.  L.  Requa, 
cited,  54 
Pittsburg,  industrial  area  of,  49 
Piatt  Amendment,  123 
Poland:  economic  development  of, 

88;   178,  179 
Porto  Rico,  234,  236 
Port  Said,  42 
Portugal:    Methuen    Treaty    and, 

64,  65;  83 
Potash,  133 

Pratt,  Dr.  E.  E.,  quoted  on  crops 
in  relation  to  prosperity,  29,  30 
Price  Lists,  136 

Prohibition,  in  England,  39  et  aeq. 
Protection,    British    Empire    and, 

90-109,  passim 
Prussia,  144 


Quesnay,  76 

Railway    Rates,    export,    British, 

100;  U.  S.,  137 
Reciprocity    Agreement    of    1911^ 

The,  260  et  seq. 
« Reciprocity      and      Commercial 

Treaties,"  80,  footnote 
"  Reciprocity      Treaties,      Favored 
Nation  Qauses,"  John  Ball  Oi- 
borne,  123 
"Reforming  the  Liquor  Trade  in 

Great  Britain,"  42,  footnote 
Requa,    M.    L.,    "  Petroleum    Re- 
sources   of  the  United  States, 
cited,  54 
Rio  de  Janeiro,  loan,  228 
Rittman  Process,  53 
Roosevelt,  Theodore,  negotiation  of 

treaty  with  Cuba  by,  114 
Root,  Elihu:  quoted  on  commercial 
intercourse  with  South  America, 
214,    215;    217;    negotiation    of 
Santo   Domingo   debt   by,    245; 

264,  284 
Eoot-Takahira    Declaration,    338- 

339 
Rubber,  Brazilian,  187 
Rumania,  83,  170,  171 
Russia:   cotton  production  in,  27, 

28;    ore  production   in,  50;   62, 

71,  83,  87,  88,  154 


San  Paulo  loan,  228 
Santo  Domingo :  113;  management 
of  by  United  States,  244  et  seq. 
Seaman's  Act,  149 
Serbia,  83 

Shanghai    International    Commis- 
sion, 289 
Sherrill,    Charles    H.,    author    of 
"The  Monroe  Doctrine  and  the 
Canning  Myth,"  207 
Shipping  Board,  147  et  seq. 
Shipping  Law,  147 
Siberia,  180 


Silk,  Italian,  165;  Japanese,  268; 
Chinese,  278 

Smith,  Adam,  attitude  of,  toward 
Methuen  Treaty,  65,  66 

Smyrna,  71,  72 

South  Africa,  60,  97,  99 

South  America:  31,  113,  154;  as  a 
commercial  and  economic  field, 
183-199;  population,  186;  as  a 
market  for  Europe,  200-213; 
German  colonization  plan  in, 
210-213;  as  a  market  for  the 
United  States,  214-231 

"  South  America  an  Export  Field," 
by  Otto  Wilson,  201-202,  foot- 
note 

Spain:  10;  ore  resources  of,  48; 
57,  83,  87;  Arthur's  Treaty 
with,  112;  144;  economic  pol- 
icy of,  184 

Spanish  West  Indies,  113 

Spencer,  Herbert,  advice  of,  to 
Baron  Kaneko  on  Japanese  trade 
policy,  quoted,  266,  267 

Stamp,  Dr.  J.  C,  287,  footnote 

Straits  Settlements,  101 

Sudan,  cotton  growing  in  the,  27, 
28 

Sugar,  value  of  Cuban  production, 
235,  236 

Sweden,  57,  144 

Switzerland,  83 

Taft,  President:  130,  143,  177, 
260;  Central  American  policy 
of,  244,  245;  attitude  of,  toward 
American  foreign  investments, 
295;  303 
Takahira,  Baron:   284;   letter  of, 

to  Root,  338-339 
Tariff  Act  of  1913,  The,  120 
Tariff  Commission,  130,  318 
Tariff:    maximum   and   minimum, 
schedules,   81   et  seq.;  English, 
82;    French,    82;    German,    82; 
Italian,  82;  Spain's  attitude  to- 
ward,   87;    Australia   and   the. 


87;  Canada  and  the,  87;  Russia 
and  the,  87,  88;  Balfour  and 
the,  94;  Cleveland  and  the,  112; 
McKinley  and  the,  114;  attitude 
of  Jefferson  toward,  110;  Grant 
and  the,  112;  Russian  trade 
treaties  under  dual,  176 

Temperament,  in  trade,  106 

Texas,  10 

Textiles,  tariff  on,  84,  85 

Tin,  from  Bolivia,  51;  197;  in 
China,  278 

Ting,  V.  K.,  279,  footnote 

Tobacco,  value  of  Cuban  produc- 
tion, 236 

Toronto  Geological  Congress  1912, 
The,  49,  footnote 

Trade,  balance  of,  16 

Trepoff  Treaty,  169 

Tunis,  60,  154 

Turgot,  76 

Turkestan,  28 

Turkey,  154,  168  et  seq. 

Ukraine,  The,  economic  importance 
of,  179 

Underwood-Simmons  Act,  143 

United  States:  benefits  of  foreign 
trade  to,  8  et  seq.;  evolution  of 
export  trade  of,  13  ef  seq.;  food 
wastage  in,  21,  22;  distribution 
of  ore  in,  48  et  seq.;  resources 
of,  53,  54;  influence  of  Paris 
Pact  of  1916  on,  76;  trade  pol- 
icy of,  89;  foreign  policy  of, 
110-139;  revival  of,  merchant 
marine,  140-152;  relation  of,  to 
Continental  Europe,  153-167; 
relation  of,  to  Scandinavian 
group,  165;  trade  relations  of, 
with  Russia  and  the  Near  East, 
168-182;  economic  destiny  of, 
in  Caribbean,  232-247 ;  trade  re- 
lations of  Canada  and,  259  et 
seq.;  export  of  capital  by,  284 

"United  States  in  the  Twentieth 
Century,  The,"  by  Pierre  Leroy 


f;^ 


350 

Beaulieu,  quoted,  140,  141 
Uruguay,  193 


INDEX 


Valparaiso,  43 

Venezuela:  4;  products  of,  198 

Virgin  Islands,  232 

War,  The  Great:   effect  of,  upon 
foreign  trade,  4  et  aeq.;  and  in- 
dustrialism, 39  et  aeq.;  effect  of, 
upon '  France's    raw    materials, 
60;  effect  of,  upon  trade  diplo- 
macy, 72;  economic  alliances  in 
relation  to  results  of,  74  et  aeq.; 
tariff  system  at  outbreak  of,  81 ; 
British  trade  before  and  after, 
91  e*  aeq.;  125;  effect  of,  upon 
American  tonnage,   141  et  aeq.; 
expanded  economy  a  consequence 
of,    153;    226;    effect    of,   upon 
Japanese    commercial    activity, 
271  et-aeq.;  effect  of,  upon  for- 
eign trade  relations,  309;   as  a 
commercial  educator,  320 

Washington.    See  United  States 

Water  power,  of  the  U.  S.,  55,  56; 
of  Canada,  55 

Webb-Pomerene  Act,  133  et  aeq. 

West  Indies,  10,  25,  114 


Wheat,  varying  values,  7;  statis- 
tics of  production  and  export, 
22  et  aeq. 

Whitley,  14 

Wilson,  James,  24,  25 

Wilson,  Otto,  201,  202,  footnote 

Wilson,  President:  cited  on  for- 
eign  trade,  11;  attitude  of  to- 
ward Paris  Pact,  76;  action  of, 
in  Santo  Domingo  matter,  245; 
in  relation  to  Haitian  Treaty, 
246;  288;  attitude  of,  toward 
foreign  investments,  295;  quoted 
on  Chinese  loan,  302 

Wilson  Tariff  Act,  113,  117 

Witte,  Count  Sergius  de:  influence 
of,   on   Russian    industrial   life, 
87,  88;  175,  182 
Woman,  status  of  industrial,  43- 

46 
Wool,  share  of  U.  S.  in  world  pro- 
duction,  55;    England's   supply, 
60;     South     American    sources, 
191,  193,  195 


Zinc,  resources  of  U.  S.,  51 
Zollveremf    German,    82;     South 
American,  201 


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